|
|
|
| They Won't Believe until Gold is
Much Higher
|
|
|
March 31, 2006
– Across the past several years gold’s price has
risen from its $252.50 nadir to a recent $572 high. Yet, despite
the fact that it has more than doubled in price, few individuals
or investors truly recognize that its Bull Market even exists.
Since 1999, the eternal metal has plodded ever
higher. It experienced both excited sharp advances and frightening
declines. Violent upwaves were often followed by price reversals
that tested the mettle of the steadfast gold-bugs. Some were
thrown from the bull’s back, but numerous others could
not be shaken from the market. For those who trusted their
judgment and understood the underlying fundamentals driving
gold’s unrelenting ascent, the recognition of the truth
helped sustain their determination and kept them invested.
It is common for secular Bull Markets to be
accompanied by not only skepticism but also by fear and disbelief.
Despite the fact that substantial profits accrued to those
who early understood that gold was destined to be propelled
far higher in price, the average person still can not fathom
gold’s destiny. While it seemed obvious to a few, the
reality remained elusive to the average man. For good or for
bad, it could not have been any other way. For, historically,
it is not until the final stages of any Bull Market that the
public enters and drives the market price to dizzying heights
that culminate in final tops.
I penned an article, “So
Few Believe” in November, 2003, that I hoped would
help investors recognize that gold was indeed in a primary
Bull Market. Just as today, I attempted to share my insights
with those who would follow my reasoning with an open mind.
I tried to educate the reader so that he would recognize that
gold’s fate was sealed.
Not much has changed since 2003, regarding the
public’s awareness of the yellow metal’s secular
Bull Market. They still remain unaware and are likely to continue
until the final bull stage.
The primary reason underpinning gold’s
Bull Market is fostered by the actions of our government.
Our nation has been moving along a path where our Fed and
government’s actions have undermined not only the present
but the future value of the dollar. This is due to the ongoing
policies which if anything have become more damaging and progressive,
thus predetermining gold’s destiny. That is, to trend
higher for the foreseeable future as it responds to the flood
of inflationary dollars that our Federal Reserve and government
continues to produce.
The purchasing power and exchange value of
currencies, that are only backed by faith in the integrity
of the issuing government, is primarily determined by supply
and demand. If the rulers of a country expand their supply
of money in excess of the increase in goods and services offered
on their markets, they cheapen the worth of the already circulating
currency. Similarly, if a country inflates its monetary aggregates,
their unit’s ability to purchase other currencies diminishes.
In both cases this reduces the amount of things
that their money can purchase. In the nation itself the cost
of goods and services will be driven higher by the increased
number of monetary units available to bid for them. On the
currency exchanges, they will purchase fewer units of the
legal tender of other countries as the sellers of the over-issued
money overwhelm other currency offerings.
This is where gold shines. It prevents governments
from an excessive creation of paper, or now electronic, money.
Under the discipline of gold a governing body cannot create
more of their monetary units than they have gold to back them.
This is the beauty of gold! It disciplines governing officials
and forces them to live within their budgets. They cannot
summarily issue money to pay for their overspending without
suffering the consequences.
Gold has been the only item that mankind has
always desired and repeatedly recognized as true money. From
the beginning of civilization it was the sole item that has
endured the test of time, and offered civilized man a benchmark
of value.
Originally, governments tied their money to
gold. They included precious metal in their coinage to foster
confidence. It was truly the sole substance that was both
coveted and universally accepted as something of eternal value.
From peasants to emperors, gold represented lasting wealth.
After all, it always required long hours of arduous sweat
and labor to recover a small quantity of the lustrous metal
from the bowels of the earth. Further, it was something that
could not be duplicated. These were among the reasons why
gold entered the world’s monetary system.
However, I must wonder if the primary reason
for its desirability was that it kept their governments honest.
It prevented politicians from debasing their money by issuing
greater amounts of monetary units beyond the quantity of gold
that they possessed to back them.
Most Investors Have Difficulty Understanding
Gold or the Markets
In the U.S. the media compares gold with copper
and pork bellies. They discuss its value as they would any
commodity. We are frequently told that “gold is too
volatile” to be a sound investment. This, despite the
fact that it has lagged behind the price rises of most metals.
We are bombarded by negative gold statements. Further, not
only our officials but the press, espouse the belief that
neither our budget nor our balance of payments deficits matter.
Decades ago, similar domestic bureaucrats also told us that
budget deficits don’t matter. For those who remember
they said, “because we owe it to ourselves”. However,
the truth is that they do matter! If they aren’t eliminated
the dollar credits that must be created to fund the overspending,
will eventually destroy the dollar’s purchasing power,
our bonds, and potentially our economy. This occurred in the
late 1970's. Inflation rose well into the double digits, interest
rates hit 20%, American business markedly slowed and, not
surprisingly, gold touched $875 an ounce.
Yet, in part I must acknowledge that they are
correct, at least in the short term. As long as our citizens
allow the deficits to build, and the rest of the world remain
deceived and continue to accept our paper and electronically
created dollars for their products, it truly doesn’t
matter. Unfortunately, the time is moving ever nearer when
this will change.
In fact, we are beginning to hear the first
rumblings of a move away from the dollar. Numerous countries
are starting to shy away from the greenback. Japan, China,
Russia, and a number of other nations are making efforts to
reduce their dollar accumulations. China seems to be at the
forefront by seeking assets for which they can trade their
massive U.S. currency holdings. Additionally, Iran is attempting
to launch a euro based market for oil. If this comes to pass,
whether in Iran or another nation, the world’s need
for dollars will enter a waterfall decline. For the dollar
to remain relatively strong it will require further American
ingenuity. Our government will have to create new reasons
to convince the rest of the world to continue holding dollars.
Most Americans are ill prepared to recognize
the importance of gold, or to even fathom the complexities
of the financial and economic world. Mathematics is one of
the primary building blocks that is necessary to understand
the intricacies of the financial universe.
In our youth most of us had our first introduction
to this discipline in the classroom. When I went to elementary
school I had one teacher. She taught us a number of different
subjects during the school day. She did it all.
Math is in and of itself a subject that can
be quite intimidating. In fact, many of us were taught by
teachers who themselves were uncomfortable with the topic.
I am certain that they did their best. But in the case of
those in my generation it is likely that numerous educators
inadvertently instilled their hesitation if not fear of the
subject into their students. Is it any wonder why numerous
highly intelligent individuals continue to shy away from anything
mathematic. If this is the case, how can they possibly have
a full command of what occurs in the financial realm. Thus,
they are forced to rely upon the media or alleged experts
who themselves may have their own agendas, present misinformation,
or know little more than do they.
Today, the gold market is experiencing yet another
correction within what I believe will prove to be its greatest
Bull Market. It has probed the $530-$535 level from where
it arose unscathed, and is now within striking distance of
its bull high. While its $534 low may prove to be the point
from which it will continue to trend higher, I feel that further
backing and filling and possible lower levels should not be
ruled out.
Gold’s 200 day moving average is $486.42 and its 50
day one is $554.97. At Friday’s $556.75 London second
fix, the yellow metal again tentatively moved above its 50
day average, while it continues to trade far above its 200
day line. This indicates that it remains in an overbought
condition. To my mind it would be healthy for its market to
work off this condition. If gold trades in its current range
or even probes yet a lower zone, it will build a strong base
from where it can initiate its next substantial advance.
They Likely Won't Beleive for Quite some
Time
Given the virtually universal refusal to even
consider that the eternal metal is in a Bull Market, it seems
to me that it may take quite a while before the masses first
begin to view gold differently. It may not be until far later
in it’s bullish ascent that the average person begins
acquiring the yellow metal. This will likely result when the
dollar is far lower on international markets, inflation is
patently obvious to everyone, and the government’s statistics
will become widely questioned. Only then will gold be sought
by the man in the street. Until that time, the average American
will neither understand or believe.
Do not despair. For when they do we will likely
witness a massive price rise that will bring back memories
of late 1979 and early1980.That was when gold rose from the
$400 range to $875 in less than six months. You had to be
there to believe it! And, perhaps you will have another similar
opportunity before this gold bull takes his last breath. It
will only be then when they will believe, but prices will
be far higher. In fact, the final explosive advance will be
created by a late-coming panicked public, just as it was in
gold’s 1970's Bull Market. And, I hope that we will
both be sufficiently perceptive to sell them our holdings
when the world once again clamors for the eternal metal.
******
I publish Financial
Insights. It is a monthly newsletter in which I discuss gold,
the financial markets, as well as various junior resource
stocks that I believe offer great price appreciation potential.
Please visit my website www.financialinsights.org
where you will be able to view previous issues of Financial
Insights, as well as the companies that I am presently following.
You will also be able to learn about me and about a special
subscription offer.
CAVEAT
I expect to have positions in many
of the stocks that I discuss in these letters, and I will
always disclose them to you. In essence,
I will be putting my money where my mouth is! However, if
this troubles you please avoid those that I own! I will attempt
wherever possible, to offer stocks that I believe will allow
my subscribers to participate without unduly affecting the
stock price. It is my desire for my subscribers to purchase
their stock as cheaply as possible. I would also suggest to
beginning purchasers of these stocks, the following: always
place limit orders when making purchases. If you don't, you
run the risk of paying too much because you may inadvertently
and unnecessarily raise the price. It may take a little patience,
but in the long run you will save yourself a significant sum
of money. In order to have a chance for success in this market,
you must spread your risk among several companies. To that
end, you should divide your available risk money
into equal increments. These are all speculations!
Never invest any money in these stocks that you could not
afford to lose all of.
Please call the companies regularly.
They are controlling your investments.
FINANCIAL INSIGHTS is written and published
by Dr. Richard Appel and is made available for informational
purposes only. Dr. Appel pledges to disclose if he directly
or indirectly has a position in any of the securities mentioned.
He will make every effort to obtain information from sources
believed to be reliable, but its accuracy and completeness
cannot be guaranteed. Dr. Appel encourages your letters and
emails, but cannot respond personally. Be assured that all
letters will be read and considered for response in future
letters. It is in your best interest to contact any company
in which you consider investing, regarding their financial
statements and corporate information. Further, you should
thoroughly research and consult with a professional investment
advisor before making any equity investments. Use of any information
contained herein is at the risk of the reader without responsibility
on our part. Past performance does not guarantee future results.
Dr. Appel does not purport to offer personalized investment
advice and is not a registered investment advisor. The information
herein may contain forward-looking information within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. In accordance
with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the statements contained herein
that look forward in time, which include everything other
than historical information, involve risks and uncertainties
that may affect the company's actual results of operations.
© 2006 by Dr. Richard S. Appel. All rights are reserved.
Parts of the above may be reproduced in context, for inclusion
in other publications if the publisher's name and address
are also included for credit.
|
