Gold and silver started the day lower, tried to make a run higher and ended up back to the lows of the day. I want to remind gold bulls what stage we are in with gold. Richard Russell sums it up best:
I believe gold is in a major or primary bull market. I believe the gold bull market is currently in its second phase. This is the phase where sophisticated and seasoned investors and the funds enter the market.
The second stage is where the bull tries to buck you off. Gold doesn’t have any friends in the mainstream market, especially since Nixon in 1971 severed any relationship with gold that we ever had. Yet for some reason most all central banks hold gold. A lot of it. This is to give the illusion that gold backs their currency. That no matter what happens to the currency, gold is still there to support it since gold never changes, has no counterparty risk, and is where all currencies throughout the history of mankind have reverted to. This is an undeniable fact that is mocked by most who believe in all paper assets (you know, the one’s who believe in derivatives of wealth). Staying on the gold bull isn’t easy when the price is falling, but your patience will be rewarded.
I am going to throw in more of these tidbits on gold each week in my Current Thoughts to keep reiterating why you own it or why you should own it if you don’t have any from time to time. A reminder is needed now because I want you, the investor, to start allocating into a position in gold and silver as the price falls. You won’t catch the exact bottom, but you will reap the rewards in the years to come. Keep in mind though that gold is first and foremost insurance. People insure their car, home, health and life, hoping it is never needed, but they forget to insure their portfolio. The type of insurance gold brings though is one that always has a return. It is not a waste of money if you never use it. It is still “real” wealth.
It really does boggle my mind that yesterday we got a 30% move in the VIX (volatility) index and gold only went up $5 and today was down over $10 early on. Gold is at $1,173.30 and silver $15.75, both below their psychological resistance of the round numbers; $1,200 and $16.00. I don’t know what it is, but I have a feeling we may get a bounce from being oversold, especially with silver. We saw a taste of it today and we still, after trying and trying, have not broke below the November 5th lows.
In the markets we had a little reversal of yesterday’s drubbing, but Greece is still an issue. Some are saying it will be resolved and the dollar may take a hit while the euro recovers some of the losses it has had of late. I am in that camp. Somehow I think they will kick the can down the road and cave in again to help Greece. Obama even came out and said that the Greece news is priced into the markets. Saying it is priced in and saying the issues are resolved are two different issues sir (President Obama is an attorney and he understands the word “issue”).
Do you, as an investor, realize just how messed up everything is in the world, and especially in Europe? Take a look at the table below and know that any bounce in the euro is going to be short lived.
Please note that 10 out of the top 12 countries are part of the European Union and use the euro as their currency, which at the time of this writing included Greece, and Japan is number one on the list with the UK 13th and the U.S. 16th.
Solution for all? Print more money.
If anyone tells you that gold is a fools game, ask them what the price of an ounce of gold is. They won’t know. It’s a small group of us that understand presently what’s going on and that’s why I try and present data that helps you understand why you buy gold as insurance. This doesn’t mean put all your money in gold, but I can probably tell you that many in Europe and Japan are going to be buying more and more in the next year or so and eventually I will say this now, I see the dollar and gold going higher together for awhile. The U.S. dollar and U.S. treasuries have been strong because they are viewed as a place to park funds, and the U.S. is still perceived as the safest of all except maybe the Swiss Franc. Kicking the can down the road, whether it is Greece, the U.S., Japan or Europe can only last so long. Japan has been good at maintaining a high Debt to GDP ratio because they have been a net exporter and own billions of U.S. treasuries. Europe is just getting started kicking the can with Greece doing the most kicking for now. And while the U.S. is known as a safe haven for wealth, they are not a net exporter and owe everyone trillions. This just shows you how messed up perceptions are.
Gold represents an asset that can give you peace of mind when the rest of the world’s leaders drive the debt truck off the cliff into more quantitative easing and other programs to fix what they broke to begin with. Once you have the disease of easy money, it becomes incurable. To think there is no consequence to this disease is naive.