Back near the highs of gold in September 2011 we used an article by Bill Bonner as a starting point to an article of our own entitled “Just How Low Could Gold Fall“. Bill figured gold was ready “to pull a fast one” and head lower after sucking in plenty of buyers. He was right and gold did turn lower from there. But he figured it could be “just a temporary setback…maybe a few years, that’s all. This bull market in gold won’t end until gold and the Dow meet. Our guess is that gold goes down…shakes out the speculators and weak investors…and then — perhaps a couple years from now…perhaps longer — begins its third and final phase.”
Well, we are getting close to a couple of years later now and gold has seen a massive fall over the past few days. Although it’s still not fallen in total as much as a couple of the other occurrences of the past that we mentioned in that article. Well, today Bill has written what you might call a follow on to that piece of sorts. He mentions where he’d like to see gold crash to so that “the final stage in the bull market could begin”.
We’ve always followed Bill’s writing, in part because he is such a great writer and in part because it was his writings that first got us thinking seriously about gold many years ago. So read on to see the latest from the consummate contrarian…
Whoa! On Friday, gold got whacked hard – down $63. It’s barely holding above $1,500.
Is this the end for the bull market in gold? Everybody says so. From The New York Times:
In Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled… A $29,000 investment that Mr. Norstog made in 2011 is now worth about $17,000, a loss of 42%.
“I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something,” Mr. Norstog, 67, says of his foray into gold.
Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking — fast. Its price has fallen 17% since late 2011. Wednesday was another bad day for gold: The price of bullion dropped $28, to $1,558 per ounce.
And this was before gold tumbled on Friday.
We can barely stop laughing.
This sad sack “investor” thought he would make money by putting $29,000 into gold stocks.
Ha-ha. Wrong on all counts. He thought gold was an “investment”… he thought an amateur speculator could make money in gold stocks… and The New York Times thought he was an investor.
And now The New York Times thinks gold is going down. Why?
Now… things are looking up for the economy and, as a result, down for gold. On top of that, concerns that the loose monetary policy at Federal Reserve might set off inflation — a prospect that drove investors to gold — have so far proved to be unfounded.
So Wall Street is growing increasingly bearish on gold, an investment that banks and others had deftly marketed to the masses only a few years ago.
Ha-ha. Do you remember Wall Street deftly marketing gold to the masses a few years ago? Show us the ads! Give us the brokers’ phone logs! Prove it!
The fact is, the masses never got anywhere near gold. Not even close. Most people have never seen a gold coin… and few are as reckless as the aforementioned Mr. Norstog. Most are even more reckless! They’ll wait for gold to hit $2,000… or $3,000 before they buy.
Which is why we’re nowhere close to the top. Wall Street never marketed gold deftly… or any other way. Not even in its usual greedy, heavy-handed fashion. And the masses never bought it.
Just the opposite. As the price of gold rose, we saw ads in the paper soliciting people to SELL gold. The masses held gold parties… in which they sold their golden heirlooms at preposterously low prices.
And those concerns that money printing by central banks would cause trouble that have “so far proved to be unfounded”? Well, stay tuned!
More good news from the NYT:
On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11% from where it traded on Wednesday. Société Générale of France last week issued a report titled “The End of the Gold Era,” which said the price should fall to $1,375 by the end of the year and could keep falling for years.
Why “good news”? Because the more bearish on gold Wall Street becomes, the more the rubes and pumpkins sell. The more they sell… the cheaper it is for the smart money to buy.
Yes, dear reader, we hope Goldman and SocGen are right. We’d like to see gold crash down around $1,300… or lower.
First, because this would mark a real correction in the bull market. It’s been going on for 12 years without a serious correction. Not a healthy situation. We’d like to get the correction out of the way… shaking out the Johnnies-come-lately and the two-bit speculators. Then, the final stage in the bull market could begin.
Second, because it gives us a chance to buy more. Because no matter what noise you hear in the press or in the street, central bankers are far more reckless than Mr. Norstog. The monetary authorities are convinced that they can revive sluggish economies by printing money… and they’ll continue printing until all hell breaks loose.
Then, when the dust settles… when pounds, pesos, yen, euros and dollars have all been beaten and bruised… there will be one currency still standing tall. That will be gold.
Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
His free daily e-letter Bill Bonner’s Diary of a Rogue Economist is your gateway to Bill’s decades of accrued knowledge about history, politics, society, finance and economics. Sometimes funny, sometimes frightening – but always entertaining and packed with useful insight, Diary of a Rogue Economist can help you make sense of the complex world we live in today.