21st Century Gold Rush Revisited
Back in late 1979, the lineups to buy Gold looked more like lineups of people waiting to buy Stanley Cup Hockey tickets at the then Famous Montreal Forum. There they stood all wrapped up in their parkas, ski jackets, and bulky sweaters wearing anything from construction boots to overshoes; there was even a sprinkling of executives in their Italian leather shoes, business suits and cashmere coats, all waiting to get in on a sure thing. The analysts and economists cited a litany of reasons to explain the Gold rush, but nobody cared. Gold prices were said to have become a barometer of political and economic fears, but in the end it was just pure GREED that drove the price until it finally peaked in January 1980 at $875 an ounce, almost on the very day that Americans were finally allowed to buy and own Gold bullion; the day that the big surge of American buying was to drive Gold to $5,000. This was yet another example of 'The Obvious is Obviously Wrong", the expected mad rush of Americans lining up to buy Gold had already been discounted in the price. Tell me something that everybody doesn't already know; that's when you will have something of value on which to act upon. The only important factor was simply that prices were skyrocketing. Anybody who was already in was making money (of course not as much as they claimed) and everyone else was afraid of being left out in the cold.
Gold was selling for $250 when 1979 began. By December, amazed at the sudden surge above $700, Gold devotees began talking $1,000 plus, some were even trying to justify $5000 or even $10,000. The rocketing prices startled all the experts and frightened even those analysts who had forecast the precious metals boom, but none called for anything like this. For the first seven years of this Bull Market, the newspapers and magazines had ignored Gold; just as they are doing today. Then suddenly, in late 1979, front page newspaper headlines, reports and articles on Gold and Silver began to appear everywhere and not only in the financial newspapers, but in the Dailies and magazines as well. The time is approaching maybe sooner than you can imagine when the beginning of the newspaper articles on Gold and Currency start to hit the front pages. Rest assured that before this bull market in precious metals is over, there will be similar front page stories around the world and Kramer will be yelling booya booya at every one of the Gold stocks that will permeate his program.
IS IT TOO LATE TO GET IN?
If you're worried that it's too late, that you missed the Bull Market, that it ended in June 2006; just ask yourself how much space is being devoted to the fact that Gold is not only holding steadfast to its natural support level, but is inching steadily higher. After a five year near 600% Bull Run, a pull back to its natural and predicted 38% support level in one month is not nearly enough time to correct that Wave I, first stage of the Bull Market. But since the correction target was reached so quickly, a minimum 10% time wise sideways consolidation is an absolute minimum requirement, so as to set the stage for the explosive Elliott Wave III of the advance.
Today as back then, most analysts and the media are completely ignoring Gold; it's only the so called Gold bugs that continue to believe in this bull market. Well I'm not a Gold Bug; I'm a realist and an economist who studies not only the past but human nature as well. Right now you would be hard pressed to even find a quote on junior Gold stocks, let alone get any booyas for Gold or Gold stocks. As a matter of fact at TD Ameritrade, one of the biggest discount brokers, you can't even get a quote let alone a chart on any Vancouver Gold or Uranium stocks regardless of their price or volumes. The last Gold rush lasted eight years (1972 to 1980): This one started in either 1999 or 2001 depending on which technical analysis you prefer and so we should have a minimum of two to three years left to run. BUT remember that most commodity bull markets have their most explosive and dynamic run in their fifth and last Wave. I have gone back in time to the 1970's and focused on Gold and Silver stocks just to give you an idea of what they will perform like in the next 2 - 3 years, and to see what happened back then when Gold first hit $500, then $600, then $700, and finally $850. The first library that I went to had the Financial Post newspapers on microfilm all the way back to 1972, the very beginning of the last Gold and Silver bull market.
There were very few if any articles when Gold first moved from $35 in1972 to $200 by 1976, completing Wave I of Gold's Bull Market. Hardly anybody noticed, certainly not the newspapers, when Gold dropped back down to $100 in late 1976, completing Wave II. It was not until Gold was exploding and well into its Wave III that a few stories on Gold and Silver even began to get published and then not until late 1978 early 79 as Wave III was peeking. Gold headlines did not hit the front page until late December 1979 into January of 1980 helping to fuel the final Wave 5 into its eventual blow off top. We are definitely not even close to that kind of action now.
The stock tables that I found were absolutely amazingK and brought back some very fond and not so fond memories. In 1975, three years into its bull market, most Gold and Silver stocks were trading at under $2 and most were penny stocks trading under $0.25. Don't forget that we were at or near the bottom of the worst Bear Market since 1929 - 1932. Even with Gold up 600% from the 1971 low of $35 to the 1975 top of $200, most Gold and Silver shares did little to make anyone except perennial Gold and penny stock traders wake up and take notice. I held a few seminars in an attempt to push Gold as the best way to make money during a falling market (the general markets were down 40 + % in less than 2 years), but getting an order was like pulling teeth. It was not until Gold was well into Wave III and had retraced all of its first big sell-off and got back well above $200 (the equivalent to $730 today) that I started to open some new accounts and get some decent orders, as the Gold and Silver stocks started their historic bull market runs that would end at unimaginable prices.
Some examples were: Lion Mines - 1975 price $0.07 / 1980 price $380. YES, that's right it's not a misprint - you could have bought 10,000 shares of Lion Mines in 1975 for around $700 dollars and if you held on for the whole 5 years until January 1980, you could have netted a total profit of around $3,799,300. Not bad ey!!!!! A few others were Bankeno - 1975 price $1.25 / 1980 price $430. Steep Rock - 1975 price $0.93 / 1980 price $440, Mineral Resources - 1975 price $.60 / 1980 price $415. Azure Resources - 1975 price $0.05 / 1980 price $109. The majors also performed superbly well, but nothing compared to the juniors. WARNING: The juniors, although offering great potential, also contain much greater risk as most of them ended up falling back to zero. So be careful.
No question about it, that was one of the biggest financial opportunities in history. I don't know of any other time, not even the dot.com bubble (how may of us could get in on the IPO's anyway) where in only a 3 year time span, you could have turned so little money into so much wealth. "You only need to make one good investment decision in your whole life to be super successful".
I believe we are now at that same juncture as we were in 1976-78, only this time the fundamentals are even better for Gold and Silver than they were back then. The similarities between the 1970s and today are uncanny. Then, as now, we were in a GUNS & BUTTER economy about to lose the respect of the world as we pulled out of Vietnam turning our backs on all our allies. A Paper Tiger was the label that was applied to the USA as the Oil Sheiks couldn't wait to get out of Dollars and into Gold and Swiss Franks (would you believe you had to pay 20% negative interest if you wanted to keep more than $100,000 in SF). Every time trading in Gold was halted due to and IMF auction of 4 million ounces of Gold, it would open $20 to $40 higher. What will happen this time when we once again, pull out of Iraq with our tail between our legs? Regardless of the fact that the USA is not acting unilaterally as our left wing media is trying to sell us they are; there are 38 countries that have supplied troops and only three European countries that voted against us, with all three involved in the Oil for Food Scandal. What about all the Arab countries like Saudi Arabia, Jordan, Kuwait and the Trucial States, Etc. that have been supporting us? What happens to them and our oil supplies when Iran and Al Qaeda take-over?
Although history always repeats it never does so in an identical fashion, so that it only ends up being recognizable long after the fact. These are only some of the real fundamental cornerstones of why Gold is in a bull market today and why the current rally in the general equity markets is really only a B Wave of an Irregular Top of the Bear Market that began in 2001; which is based on near record low interest rates, several tax cuts as well as the FED and the BOJ flooding the world with fiat money! Soon the Fed will be forced to continue to raise interest rates in an attempt to save the dollar and stop inflation from exploding; The first causality will be to exacerbate the crash of the Real Estate market; then comes the imploding of the stock and bond markets, followed closely by the credit markets as the take-over and privatizing craze comes to an abrupt end. We are about to witness the Laws of Supply & Demand in action. For your own information, I recommend you read "The Dollar Crisis" By Richard Duncan. Balance of payment deficits of an unprecedented magnitude have resulted in credit induced economic over heating on a global scale. There is a limit to how much money created out of thin air can keep the US and world economy going.
Greenspan was and Bernanke now is attempting to create a soft landing by slowly raising rates before he is forced to. But along with raising rates Greenspan was and Bernanke now is also pursuing a policy of easy money, in an attempt to keep the economy rolling along while trying to engineer a soft landing for real estate. Greenspan has painted the FED and the world into a corner that his successor, Bernanke, will not be able to get us out of without a whole lot of pain and suffering. Investing in Gold and Silver shares and the physical metals now and holding them for the next 2-3 years could be the only major financial decision you may ever have to make in your entire life.
Do NOT trade in and out. Just buy some stocks and bullion now, add to you positions on any short term sell-offs or on break-outs to new highs and wait until you see Gold and Silver splashed all over the headlines in all the newspapers and magazines, not just the financial ones. Or if you have not yet taken a position, then scale into any precious metals mutual fund: When Gold breaks out to new highs above $730; use your increased buying power to increase your positions. By the time that front page story which ran in January 1980 appeared, most Gold and Silver stocks were trading over $50 per share and lots were trading over $100 -$200, some even as high as $500 per share. Only a few years earlier you could have bought the same stocks quietly between $1 to $5. I know it's hard for most of you to believe that Gold and Silver will surpass their old January 1980 highs, but that is what a 20+ year generational bear market will do to a whole generation of investors who have grown up with falling real assets (Gold, Silver and commodities) and rising paper assets (stocks and bonds). When the tide of human emotions swings and paper assets really start to fall hard, the lust and fervor for real assets will be unbelievable. Gold will have to increase to over $2,500 just to get back to its previous high in real dollar terms. The dot com bubble will look like small potatoes compared to some of the upcoming gains in the Gold and Silver bull market of the 21st century. But unlike the dot com bubble that was based on easy financing, unrealistic dreams of profits, aggressive accounting and pure greed, the coming explosion in Gold and Silver stocks will be all about not only Greed, but abject FEAR as well, to protect one's savings from the paper destruction combined with the GREED to get in on a sure thing. There is nothing that can stand in the way of a combination of GREED and FEAR.
TOTAL EQUITY OF ALL GOLD STOCKS
When the entire world wants a piece of the Gold and Silver bull market, they will discover that there is only a relatively very limited supply of shares and you can't create a Gold mine out of thin air like you could a Dot com company. The combined total of all Gold stocks is less than that of the equity of EXXON and GE. Yet it is estimated that there is over $1.2 Trillion in Hedge Fund money alone and that's not counting all the leverage ability they have at their disposal. Can you imagine what happens if suddenly they wake up and begin a rush to Gold? There are over 10,000 mutual funds that have not even looked at Gold and yet they have a mandate to be fully invested. What do you think they will do when the only stocks going up are Gold and Silver stocks? (Maybe Uranium, Platinum and Palladium as well). Remember most mutual funds cannot go short, so what better way to make money in a falling market than buying into the only markets that are rising?
The Gold and Silver stock sector is very small compared to the bond and stock markets and it won't take much buying, percentage wise, to push these stocks into the stratosphere. I am sure that most of you have friends who can't name even one Gold stock; But I'm also sure that in the not too distant future, they will be touting you about the latest hot Gold new issue coming out of Vancouver, or Alberta or Denver even though they don't know where Vancouver and Alberta are. That will be the first major sign that the top is near.
I firmly believe that the current opportunity in Gold and Silver and the companies that mine them may be presenting you with a once in a lifetime opportunity, where even a modest investment could change your financial destiny.
NEAR TERM OUTLOOK
Plain and simple: The Junior Penny stocks are near their highs. That is the first sign that the second stage of the Bull Market is beginning. Junior Gold shares usually lead Gold bullion both up and down. Check out their respective charts. The Majors look to me like they are still in their consolidation phase as they increase their takeovers of midsized and exploration companies.
WELL, ARE YOU ALL PREPARED TO BUY YET? It takes guts to stand alone, 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 10% or 20% of a major bull market bottom?
If you are already invested and you attempt to trade a GOLD RUSH like you trade any other market, you will be sadly disappointed. You may be lucky enough to pick a short term top that will make you feel smart for a day or even a week; then suddenly you will be left standing at the station with your hands and money in your pockets, watching as the Gold Rocket Ship takes off and you will not have the courage to jump back in at accelerating new highs. You will sit there waiting for the pull back that came in May/ June and is now over. If that happens to you, be ultra careful that you don't get sucked back in at or near the HIGH as the front page headlines clamor about the Bull Market in Gold and Silver. If you have been sucked or scared into taking profits and are now sadly sitting on the sidelines, watching as your smart sales break out to new highs, SCALE BACK IN NOW.
Be careful not to let buying at new breakout highs stop you. Just treat them like Investors Business Daily and a host of other analysts have been treating the regular markets all new breakout highs for the last ten or fifteen years. Then if you think you're unlucky because the market sells off just after you bought, think again and reconsider whether or not you were unlucky or whether you just got your wish and are now able to scale in at lower rather than higher prices as you build your positions before the Gold Rocket Ship blasts-off.
Aubie Baltin CFA, CTA, CFP, Phd. (retired)
Palm Beach Gardens, FL
18 February 2007