Old but good read on POG and miners
21st Century Gold Rush UP DATE
(HowHigh Can Gold And Silver Stocks Go?)
AubieBaltin CFP. CTA, CFA, Phd. (retired)
Back in the late 1970's, thelineups to buy gold were reminiscent of people waiting to buy StanleyCup Hockey tickets at the then Famous Montreal Forum. There they stoodall raped up in their Parkas, ski jackets, bulky sweaters, constructionboots and as well as executives in their Patten leather shoes, businesssuits and cashmere coats. They ranged in age from their early teens totheir 80's; Waiting for hours on end, to buy Gold. The analysts andeconomists cited a litany of reasons to explain the new gold rush butnobody cared. Gold prices were said to have become a barometer ofpolitical and economic fears but in the end it was pure GREED that drovethe price until it finally peaked in January 1980, as it hit $850 anounce, on the very day Americans were finally allowed to buy and owngold; the day that the big surge of American buying was to drive gold to$5,000. 'The Obvious is Obviously Wrong" that fact was alreadydiscounted in the price. Tell me something that everybody doesn'talready know, that's when I'll have something of value. The onlyimportant factor was simply that prices were skyrocketing. Anybody whowas in was making money and everyone else was afraid of being left outin the cold. Gold was selling for $250 when 1979 began. Later, amazed atthe sudden surge above $700, gold devotees began to think $1,000 + someeven thought $5000 or even $10,000 was possible. The rocketing priceseven startled the experts and frighten the analysts who had forecast aprecious metals boom but not one like these newspaper reports andarticles on gold and silver which were all over the front pages in late1979 and early 1980, but not before. Articles such as; "Industrialusers worried about gold prices," "Silver soars even faster than gold","Canadian traders say silver's popular", "Gold stocks look evenbetter," "Ottawa won't announce timing of gold sale," were everywhere.Although we are probably years away from any newspaper articles of thissort, Rest assured that before this bull market in precious metals isover there will be similar front page stories around the world andCramer will be yelling booya booya at every gold stock that will thenpermeate his program.
If your worried that it's too late now,that you missed the move; just ask yourself how much space is beingdevoted to the fact that gold just broke out to a new recovery and 18year highs. (Then as today most analysts and the Media completely ignoregold, it's only us so called gold bugs that continue to believe in thisbull market), Well I'm not a Gold Bug, I'm a realist and an economiststhat studies the past as well as human nature. Right now you would belucky if you can even find a quote for gold let alone any booya's forgold or gold stocks. By going back in time to the 1970's I havefocused on gold and silver stocks just to give you an idea of what theywill perform like in the next 3-5 years, and to see what happened backthen when gold first hit $500 then $600 then $700 and finally $850. Istarted my research by going to the library to look at newspapers fromthe 1970's, and WOW did I find some amazing things!! The Library that Iwent to had the Financial Post newspapers on microfilm all the way backto 1972, the very beginning of the last gold and silver Bull market.There were very few if any articles when gold moved from $35 in1972 to$200 by 1976, and hardly anybody noticed when Gold dropped back down to$100 in late 1976. The plethora of stories didn't even begin to getpublished until late 1978 early 79 and they didn't hit the front pageuntil December 1979 into January of 1980 the final blow off top.
The stock tables that I found wereabsolutely amazing. In 1975 most gold and silver stocks were trading atunder $2 and a lot were penny stocks under
.50.
Even with gold up 600% from the 1971 low of $35 tothe 1975 top of $200 most gold and silver shares did little to makeanyone wake up and take notice. Please remember that we were in a severeBear Market throughout most of 1973-1974 and keep that fact in mindwhen the general market sells off. I worked for Dominic & Dominicat the time and the President was one of the worlds Biggest Gold Bullswho became famous for going to Japan and selling them Gold. I held a fewseminars in an attempt to push Gold stocks as well as Bullion as thebest way to make money in a falling market but getting an order was likepulling teeth. It was not until gold retraced its first big sell-offand got back above $200 did the gold and silver stocks started therehistoric bull market that would end at un-imaginable prices.
Some examples were: LionMines - 1975 price
.07 / 1980 price $380! -- YES that's right, it'snot a misprint you could of bought 10,000 shares of lion mines in 1975for around $700 dollars - and if you held on for the whole 5 years untilJanuary 1980 you could have netted a total profit of around $3,799,300.Not bad hey!!!!! A few others were Bankeno - 1975 price $1.25 / 1980price $430. Wharf Resources - 1975 price
.40 / 1980 price $560.Steep Rock - 1975 price $.93 / 1980 price $440, Mineral Resources - 1975price $.60 / 1980 price $415 . Azure Resources - 1975 price
.05 /1980 price $109
No question about it…that was one of the biggestfinancial opportunities in history. I don't know of any other time, noteven the dot.com bubble (how may of us could get in on the IPO's anyway)where in only a 5 year time span you could have turned so little moneyinto so much wealth. "You only need to make onegood investment decision in your whole life to be super successful". Ibelieve we are now at that same juncture as we were in 1976-78,but only this time the fundamentals are even better for gold and silverthan they were back then.
The similarities between the 1970s andtoday are uncanny. See if you can find a copy of James Dines propheticclassic "The Invisible Crash" known then as the "Gold Bugs Bible". Thebook is basically a documentary case study of the stock and gold marketsof the 1960's to mid 1970's. The things that Mr. Dines wrote about backthen could have easily been written last week or talked about on MSNBCyesterday. Here are a few quotes A full-fledged panic away frompaper money could start at any moment". Or how about this nicequote. "When people see gold and silver standing alone amidst theeconomic ruins, they will realize that we gloom and doomers wereactually right". "Too much paper has been printed in the past, and willhave to be wiped out no matter what." "People say gold is useless. Nottrue. It is demonstrating its function right now for all to see. Goldis the ballast for the monetary printing press and gold willrelentlessly punish all offenders" The list of timeless quotes goeson but I will leave you with one last quote that is very relevant totoday's problems in the U.S dollar and the so called economic rebound. "It's beginning to dawn on some people that todefend the dollar and avert a dollar crisis, U.S interest rates willhave to go up; . However, if interest rates go up sharply it will chokeoff not only our economy but will surly burst the Real Estate Bubble aswell. What a dilemma!"
The similarities between now and then are simplyuncanny. All of these quotes tell the real story of why gold (andsilver) were so important throughout history.
History Repeats but never in anidentical fashion so that it is not recognizable until only after thefact. These quotes are the real fundamental cornerstone of why gold isin a bull market today and why the current rally in the general equitymarkets is only a bear market rally based on near record low interestrates, (that can't last), several tax cuts and the FED flooding theworld with fiat dollars!
Now that the Fed is being forced to raisesinterest rates, to save the dollar among other reasons; the stockmarkets, bond markets, housing markets and credit markets and finallythe oil market will, shortly begin to implode once their respectivebreaking point are reached. For your own information I recommend youalso read "The Dollar Crisis" By Richard Duncan. "Balance of PaymentsDeficits of an unprecedented magnitude have resulted in credit inducedeconomic over heating on a global scale. The foundations for sustainableeconomic growth will not be restored until this flaw is corrected andthe U.S. trade deficit ceases to flood the world with liquidity. Theonly ammunition the FED has to stop the coming decline in the U.S.dollar is to raise interest rates. But if they raise rates too fast theywill cause a simultaneous crash in multiple markets (stock, bond,housing, credit). Greenspan is attempting to create a soft landing byraising rates before he is forced to. So along with raising ratesGreenspan is also pursuing a policy of loose money hence his Conundrum.Greenspan has painted himself and the world into a corner that Ibelieve we will not be able to get out of with a lot of pain.. Investingin gold and silver shares and the physical metal now and holding themfor the next 3-5 years could be the only major financial decision youmay ever have to make in your entire life. No need to trade in and out.Just buy some stocks now, add to you positions on any short termsell-offs and wait until you see headlines in the newspapers similar tothe one that I opened this essay with. Or scale into any precious metalsmutual fund. Remember, when that front page storywhich ran in January 1980, most gold and silver stocks were tradingover $50 per share, and lots were trading over $100 -$200 some even ashigh as $500 per share when only a few years earlier you could havebought the same stocks quietly for a $1 or $2. As of now I don't knowof even one gold or silver stock that is anywhere close to trading atover $100 per share.
I know it's hard for most people to thinkthat gold and silver will surpass their old January 1980 highs, but thatis what a 20+ year generational bear market will do to a whole newgeneration of investors, who have grown up with falling real assets(gold, silver and commodities) and rising paper assets (stocks andbonds). When the tide of human emotion swings and paper assets reallystart to fall hard, the lust and fervor for real assets will beunbelievable. The Dot Com bubble will look like small potatoes comparedto some of the up coming gains in the first gold and silver bull marketof the 21st century. But unlike the dot com bubble that was based oneasy financing, unrealistic dreams of profits aggressive accounting andpure greed, the coming explosion in gold and silver stocks will be allabout supply and demand and a object FEAR to protect one'ssavings from paper destruction combined with GREED to get in on asure thing. There is nothing that can stand in the way of a combinationof GREED and FEAR.
TOTAL EQUITY OF ALL GOLDSTOCKS
When the entire world wants a piece of thegold and silver bull market they will discover that there is only arelatively very limited supply of shares, and you can't create a goldmine out of thin air like you could a Dot Com company. The combinedtotal of all gold stocks is less than that of the equity of IBM. Yet it is estimated that there is over $2 Trillion inHedge Funds alone. Can you imagine what happens if suddenly they wake upand begin a rush to Gold. There are over 8,000 mutual funds that havenot even looked at gold -- and yet they have a mandate to be fullyinvested. What do you think they will do when the only stocks going upare gold and silver stocks?
The gold and silver stock sector is very smallcompared to the bond and stock markets -- and it won't take much buying,percentage wise, to push these stocks into the stratosphere. I am surethat most of you have friends that can't name even one Gold stock; ButI'm also sure that in 3-5 years they will be touting you about thelatest hot gold new issue coming out of Vancouver, or Alberta eventhough they don't know where Vancouver or Alberta are. That will be thefirst major sign that the top is near…
I firmly believe that the opportunity in gold andsilver and the companies that mine them, may be presenting a once in alifetime opportunity, where even a modest investment today could changeyour financial destiny.
NEAR TERM OUTLOOK
"Plain and simple; Gold Shares usually lead GoldBullion both up and down. Check out their respective Charts. Gold Shareslook to me like they have already bottomed and have begun the first legof the next stage of the ongoing Bull Market". This is an excerpt frommy July letter where I anticipated that gold was "still in itsconsolidation phase, but was nearing completion of what in my opinion,using Elliott Wave analysis, was a declining a,b,c,d,e, wave (4)triangle. My best guess then was that the low (if it has not alreadybeen made) would be in the $410 to $420 area", "you can wait for aconfirmed low in B.llion if it will make you feel more comfortable, aslong as you are prepared to pay 20% to 50% more for your favorite goldstocks, once Gold Bullion breaks out to new recovery highs" WELL ARE YOUALL PREPARED TO BUY YET?. It takes guts to stand alone against thecrowd, but that's what you have to do if you want to make real money.Who among you can really expect to do better than to get in within 5%-10% of the beginning of the next major move? However since we are stillvery early into the biggest GOLD BULL MARKET to come in history and ifsleeping better is more important to you, than wait for Bullion'sconformation of its resumed bull market and then buy. WELL WE JUST BROKE OUT TO NEW HIGHS. Be carefulnot to let buying the stocks at new breakout highs stop you. Just treatthem like Investors Business Daily and a host of other analysts havebeen treating all new breakout highs for the last ten or fifteen years.
Aubie Baltin CFA, CTA, CFP, Phd.(retired)
Palm Beach Gardens, FL
aubiebat@yahoo.com
561-840-9767
26 November 2005
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