Blood in the Golden Street?

by JDH on February 16, 2013

If I remember my history correctly, it was Baron Rothschild, of the the super rich Rothschild’s, who 200 years ago advised investors that the tine to make money was to “buy when there’s blood in the streets.”  The gold market sure looks bloody.

Gold6Months-Feb15-2013

Over the last six months the direction, quite obviously, is down.

We only need to remember back to the first week of October, 2012 when gold traded just shy of $1,800.  On Friday the intra-day low was less than $1,600, at $1,596.70.

That’s a $200 drop in five months, or over 11%.

If gold keeps dropping $200 every five months, we’ll be at $1,200 by year end, and gold will be cheaper than lake water in two years.

Will that happen?  No, it won’t, but this is what “blood in the streets” feels like.

The almost 2% drop from high to low on Friday alone was not pretty.

The one year picture is only slightly better:

Gold1yearFeb15

The $1,600 level puts us back to where we were last August, where a double bottom at $1,600 was the springboard to the $1,800 level two months later.  Unfortunately there is no double bottom evident in the chart, so it’s quite likely that there is more down side ahead.

Year to date gold is down 3.94%, with 3.56% of that drop happening this past week.  In contrast, the DOW was flat this week, and is up 6.7% on the year, slightly better than the S&P 500’s 6.46% gain on the year.

DowFeb15

The DOW appears to be in a consolidation phase, stuck around the 14,000 mark all month.  The RSI is easing slightly, so perhaps this is a base that will propel the market to new highs.  So what do you do?

As long time readers know, I am firmly in the camp that “this is all an illusion”.  The Fed, and most governments around the world, are printing money, and that money is flowing into the stock markets.  At some point the near zero interest rates will cause the bond markets to tank, which may provide a further lift to the stock market, or may crash the entire house of cards.  At that point there will be a flight to safety, in the form of something that can’t be easily printed: gold.

Taking a longer term view, gold remains in an uptrend:

Gold10YearsFeb15-2013

The last year looks like a consolidation phase, but over the last ten years the trend is obviously up, and even a correction to $1,300 or even $1,100 would not be the end of the bull market.

Blue chip gold stocks, like RGL.TO – Royal Gold Inc. have similar looking charts:

RGL-10years-Feb15-2013jpg

The nice, steady upchannel for the last ten years remains comfortably in place, and even a drop below $60 would not change the long term outlook.

So, with that historical perspective, what did I do on Friday?

I bought.

A fair amount, actually.

In addition to picking up more RGL.TO – Royal Gold Inc. I also bought more:

and a few other smaller stocks.  This is blood in the streets people, so take advantage.  Royal Gold pays a quarterly dividend of 20 cents, so at $70 per share that’s a 1.1% yield, which is better than you’ll get putting your money in the bank.  Franco-Nevada pays 6 cents per month, so at just over $50 per share that’s a 1.4% dividend yield, also good.

I suspect that next month, or next year, we will look back at these prices and wish we had loaded up, so that’s what I’m doing.  I may be early, but that’s fine, I’ll keep deploying cash on days of weakness.

That’s my plan.  Stay tuned, thanks for reading, and see you next week.