January 30, 2006

The Public Discovers Gold

You know, you can pore over all the market data available — count all the waves, draw all the trend lines, and go through all the trading stats with a fine-toothed comb — and not gain the level of insight that a simple, accidental observation may provide.

This hit me on December 26, as I sat in the airport with my wife and two kids, awaiting our flight to Disney World. I sauntered over to the newsstand in search of enough words-in-a-row to make the two-hour flight pass agreeably, when my wandering gaze stopped abruptly on Fortune Magazine.

There it was — right on the cover. Gold. A full-cover shot of gold bars...and headline treatment for the yellow metal...in Fortune’s big annual “Investor’s Guide 2006.”

Now, news publications feel a certain obligation to report on all the important events of the day. But they don’t put everything on the cover. No, the cover is where they try to sell the issue...so the cover will feature only what they think the public wants to see.

So the marketing geniuses at Fortune have perceived a growing public interest in gold, to the point where they think putting gold bars on the cover will help sell more magazines.

That may not sound like much, but can you remember the last time a major investment magazine featured gold on its cover? Yes, probably in early 1980, at the peak of that historic bull market.

But my point is not that we are near the peak of this bull run. Quite the opposite, because the first appearance of gold on a major magazine cover was probably in the early to mid-1970s, around the time that the idea of gold as an investment was just emerging in the mainstream public consciousness.

So we are probably far removed — a couple of years, at least — from the top of a mainstream investor mania for gold. But it is beginning, and Fortune’s cover treatment is powerful evidence of that fact.

More evidence is provided by how gold shares have been bid up to such elevated, even seemingly ridiculous, levels. Watching the Gold Bugs Index break convincingly through 300 has been an amazing (and gratifying) sight, and it’s testimony to what can, and will, happen as unwashed, uneducated hordes of investors continue to flood into this tiny sector.

So, get used to it — this is a new game, and not the bull market you’ve become accustomed to. Don’t forget to sell into strength, and continue to “turn the soil” in your portfolio. But neither should you underestimate the potential of this market to go much, much higher as it gets “discovered.”

Brian Lundin