Gold can reach heights

Bud Conrad believes that Gold can reach heights others do not even imagine. He lays out his case in a  lengthy analysis for those interested.

In Mr. Conrad’s opinion, the case rests on the following:

… until there are fundamental changes in government fiscal and monetary policies – and a recognition that the sovereign debt is unpayable and therefore needs to be restructured – there is no reason to fear gold pullbacks and every reason to expect even more positive returns in the gold mining stocks that are still catching up to the rapid gold rise.

Even higher prices than mentioned here are possible from the flight to safety out of the euro, the seasonal rise into the new year, and the accelerating action of gold from a shift in sentiment of the investment public to a relatively small market. Gold is by far the best “answer,” and now is still the best time to invest.

For many of the reasons outlined by Mr. Conrad I look for gold to be a reasonable place to put a portion of one’s portfolio. It is attractive if for no other reason than it appears safe. No other asset class does.

In my opinion, gold will reward in the long term. In what may be near-term panic markets, gold may sell off with financial assets.  Investors may get caught in margin spirals where they have to sell what they can rather than what they want.

During the last couple of weeks stocks and gold have sold off together. In my opinion, this represents a few factors:

• Margin squeezes
• Latecomers to gold getting scared out
• Panic selling
• Rush to liquidity

The same negative performance for gold (on a larger scale) occurred in 2008 – 2009 when the stock market declined and gold went with it. The coming decline may be bigger for stocks when markets fully realize there is no way out of the financial hole that governments have dug.

The stock market sell-off presents both risk and opportunity for gold. Thus far, gold and stocks have moved together in a downward direction. That is unlikely to continue much longer.

At some point, fiat currencies will be viewed as being in a Voltairian cycle (on their way to their intrinsic value — zero). Then, gold will become the true save haven as it will be the only asset left standing.

I am looking for gold to diverge from stocks soon. Yesterday, as an example, gold was up and stocks were down for the first time in a while. Today, at least pre-market, it appears both are headed down again. Until a divergence trend becomes apparent, I have lightened up on gold. Once that relationship returns, I shall become more aggressive.

This is not investment advice, merely how I react to these markets. Consult your financial adviser rather than reacting to internet noise.