by Doug Casey, Casey Research:
Today, in place of our usual market commentary, we have another important essay for you from International Speculator editor Louis James.
Last week, Louis explained why it’s not too late to get in on the big gold boom right now, saying “I think we’re all about to make a pile of money.” Today, he shows you just how high gold could go as this bull market gains momentum.
As you’ll see, right now is the ideal time to own gold stocks…
Dear Reader, “You’re crazy, buying gold now!” That’s what one of my students said to me in the summer of 2008. I was teaching one of my seminars on entrepreneurship, that time in the Republic of Georgia. Gold had risen for seven years and was trading around $800 per ounce.
This student was a very bright Azeri fellow, business savvy and economically astute. But also a product of his education. He said it was foolish to buy gold, which had no real use, when it had become so expensive.
I told him, and the whole class, to watch what happens to gold when everything almost everyone thinks they know about economics gets called into question.
They had that opportunity a few months later, in the crash of 2008.
As you may recall, gold initially took a hit. There were margin calls and fund redemptions left and right. Jobs disappeared and money vanished into thin air it’d been made of. People were forced to sell anything anyone was willing to buy. That included gold—which dropped to almost $700.
My student wrote a snarky email asking me if I still thought buying gold was a good idea. I wrote back, saying that those who bought before the crash and didn’t panic would come out well before long. And I told him that buying (more) while it’s value was manifestly up and its price was down was an even better idea.
I remember readers writing in to ask what was wrong. Gold was supposed to be protecting them during crisis, not falling with everything else. The best of the best gold stocks went on sale with all the dreck. I told subscribers to stay disciplined and, as Casey Research founder Doug Casey likes to say, “back up the truck for more.”
In truth, gold was doing its job. People whose paper wealth evaporated but who were lucky enough or smart enough to have bought gold had a liquid asset they were able to use to cover emergency needs. Many of those who’d dismissed gold were wiped out. It was an educational reality check.
As soon as the immediate liquidity crunch passed, gold made a sharp reversal upwards. It finished the year in the black, when almost everything else was drowning in the red. The best of the best gold stocks rebounded as well, then pushed on to new highs in 2009, 2010, and 2011, as gold went screaming up to $1,900 per ounce.
I ran into my student at a conference in Italy in 2009. To his credit, he admitted that I was right. To their credit, many of my readers who bought with me during the crash of 2008 made spectacular profits in the following years. And they deserved to. They took what felt like a huge risk when few others had the courage.
The point of this story, today, is that those who bought after the initial rebound, in 2009 and 2010, also did extremely well. Below is a table showing the ticker symbols of every stock we recommended as one type of buy or another in the December 2008 edition of the International Speculator, and their gains from then until early 2011, when gold stocks were peaking. (Note: gold stocks peaked before gold did.)
These facts are worth remembering because many people seem to think they have missed the boat. If the bottom at the end of 2015 was like the bottom in late 2008, then 2016 is like 2009, and there’s plenty of money to be made buying the right stocks now and going forward.
How much higher can it go?
The chart below provides some perspective. It shows the rise of gold in past bull markets and the current gold bull, thus far. They are all shown starting from the current bottom in late 2015, so the past lines extend into the future.
The current bull is that little purple worm in the lower-left. As you can see, it has a long way upward to go just to match the smallest of the past bulls. As wild as it sounds, if gold rises as much as it did previously, it could hit $6,000 to $8,300 per ounce. It could go well beyond that, of course. Or it could fall short.
Key point: if we are truly into a new bull market for gold, it would be a statistical rarity for it to finish any time soon, or anywhere near current price levels.
This is important to keep in mind if we get a big correction soon. As you can also see in the chart, it’s not uncommon for gold to spike and retreat in the midst of a sustained bull run. That means gold could retreat below $1,200, or even $1,100, and it wouldn’t be unusual.
It would, in our view, be a buying opportunity—especially for those just joining us.
Does that mean you should wait for a correction before buying anything?
No. Buy on down days for gold, certainly. There’s no need to pay more than you have to, even for a stock with tremendous potential. But if you wait for a correction and it doesn’t happen, you’ll be kicking yourself later.
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