Gold and silver - don't fear the wall of worry
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Investors today seem to love jumping on whatever asset’s price is soaring. Tesla is going vertical? Buy Tesla. Gold is going vertical? Buy gold stocks. Already overvalued? No problem—it’s hot!
This sort of momentum-chasing is no “buy low, sell high” strategy. It can work if a greater fool comes along, but if one buys just as momentum falters, the losses are major.
All obvious, I know, but needed to set the stage.
Now, gold bugs enter the scene, stage right.
We buy gold and silver whenever we can… but gold and silver stocks? Do we buy at the bottom in late 2015? After the failed rally in 2016? Or during the Crash of 2008?
A few of us did—precious few. More were spooked out of the market. Many took huge losses in the process.
I’ve seen evidence of this in the flow of reader correspondence over the years. Perhaps more telling is that subscriptions tend to soar when gold is soaring, flatline when gold trades sideways, and tumble when gold and silver go into reverse.
We like to think we’re contrarians who are too smart to buy all the media hype and follow the investment herd. But in our own sector, most of us are as likely to fall prey to groupthink and chase momentum as other investors.
I bring this up because gold has traded sideways for months. So have many gold stocks… and even subscriptions to my services have leveled off. (We’re doing fine, no worries; I mention it as a relevant datapoint.)
If I thought gold and silver had already peaked, I’d actually see this as a good thing. Fewer people would get hurt in the ensuing bear market.
But I believe the opposite. After a record run, we’re going through a normal and healthy period of consolidation in the monetary metals space. Absent a broader market crash that puts a temporary squeeze on gold and silver, I think the next big move is going to be upward.
The way to maximize gains in this context is to research and act on opportunities now—not when gold is in the headlines for making new all-time-highs.
I should point out that I am doing more research and less actual buying right now, because I’m seriously concerned about a potential stock market crash before, or not long after the US election on November 3.
This is no contradiction to my main point; it’s important to know what I want to buy if there is a crash—now—not after it’s too late.
Besides, there may not be a crash. Powell could spark a renewed market mania just by opening his mouth. That’s why I’ve not been afraid to buy first stakes in great speculations when impatient investors dump shares, driving them down to reasonable entry levels.
Key Point: We don’t actually need higher gold prices to make lots of money.
Imagine what would happen if gold did “nothing,” fluctuating sideways for years…
That would mean $1,900–$2,000 gold for quarter after quarter after quarter.
Sadly, such a stable price environment is very unlikely.
Happily, I think gold will head much higher before all is said and done. That may average out to about $2,000 per ounce over the next few years, but it would likely be with great peaks and troughs along the way.
The point is that while it’s very predictable market psychology, it’s also bad strategy for investors to stop buying—or researching their next buys—simply because prices have stopped rising.
If a speculator is unwilling to climb the “wall of worry” phase of a major secular bull market, he or she can’t expect to reach the top when the market peaks.
Contrarians don’t wait for everyone else’s blessing before buying.
That’s my take,
P.S. To keep you abreast of opportunities and issues affecting resource speculation—without unleashing a daily flood of advertisements—I encourage everyone to sign up for our free, no-spam, weekly Speculator’s Digest.