Having either been hit by, or dodged, all sorts of bullets in the past decade, investors are gunshy. One of the most reliable guides to getting out of an asset that has appreciated is when the chatter is uniformly positive. Thus I take the interview that Kitco's Jon Nadler gave as a positive to stay the course with gold. Kitco is in the business of selling gold and other metals. Yet their expert ends the interview by looking for gold price downside to under $1000/ounce to get the "cobwebs" out of the market (what that means, I don't know), and even more strikingly, he refers with some approvingness to S&P's prediction of gold dropping to $680/ounce in 2-3 years.
Given that markets should rise, that means that S&P is saying that gold is priced approximately twice as high as it should be, or in other words, that the U. S. dollar is massively undervalued against a form of wealth preservation that Mr. Nadler specificies has served that function for about 5700 years. Hmmm . . .
Gentle Ben has more than doubled the monetary base to "fight deflation" with some keystrokes on a computer. The quantity of gold available to the world doubles about every 35 years. Which is inherently easier to devalue?
If gold is worth $600/ounce, then it is worth the price it first hit 31 years ago.
OK. Let me buy toothpaste for the same price as 31 years ago. Please note that toothpaste is almost all water. The second leading ingredient in my Crest(R) is sand (silica). The gross margin for Crest is certainly well above 90%, far exceeding the average gross margin for gold miners.
I believe Chairman Bernanke when he speechified years ago that he would use every helicopter he could commandeer to make sure that "it" (price declines/deflation) won't happen hear once again. Whether or not this is more like the summer of 2007 or (heavens forfend) 2008, or even 2004, I am not seeing this cycle as one where the marvelous principle of alternation of cycles applies to gold (whereas I do see it applying to tech on the upside and housing/finance stocks on the downside).
Thus I take the uber-bearish comments of Mr. Nadler as supportive of my regretfully constructive view of gold-related investments.
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