21st Century Gold Rush

(How High Can Gold and Silver Stocks Go?)

Back in the late 1970's, the lineups to buy gold were reminiscent of people waiting to buy Stanley Cup Hockey tickets at the Montreal Forum. They stood in their jeans, ski jackets, bulky sweaters, construction boots and business suits and coats. They ranged in age from their early teens to their late 90's; Waiting for hours on end, to buy Gold. The analysts and economists cited a litany of reasons to explain the new gold rush. Gold prices, a barometer of political and economic fears as well as finally hit a record $850 an ounce on January 3, 1980. But in reality, the only important factor was simply that prices were skyrocketing. Anybody who was in was making money, not as much as they claimed but making money nevertheless and everyone else was afraid of being left behind. Gold was selling for $250 when 1979 began. Later, amazed at the sudden surge above $700, gold devotees began to think $1,000 + some even thought $5000 or even $10,000 was possible. The rocketing prices even startled the experts and frighten the analysts who had forecast a precious metals boom. Newspaper reports and articles on gold and silver in late 1979 and early 1980 were all front page stuff. Articles such; "Industrial users worried about prices," "Silver soares even faster than gold", "Canadian traders say silver's popular", "Gold stocks look even better," "Ottawa won't announce timing of gold sale," were everywhere. Although we are probably years away from any newspaper articles of this sort, I expect that by the end of this decade there will be similar news stories around the world.

I have focused on gold and silver stocks to see were they might be going in the next 3-5 years, by going back in time to the 1970's and to see what happened back then when gold first hit $500 then $600 then $700 and finally $850. I started my research by going to the library to look at newspapers from the 1970's, and WOW did I find some amazing things!! The 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 articles when gold moved from $31 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 get published until late 1978-79 and they didn't hit the front page until December 1979 into January of 1980 the final blow off top. The stock tables that I found was absolutely amazing.. In 1975 most gold and silver stocks were trading at under $2 and a lot were penny stocks under $0.50. Even with gold up 600% from the 1971 low of $32 to the 1975 top of $200 most gold and silver shares did little to make anyone wake up and take notice. I worked for Dominic & Dominic at the time and the President was one of the Biggest Gold Bulls who became famous for going to Japan to sell them Gold. I held a few seminars in an attempt to push Gold stocks as well as Bullion getting an order was like pulling teeth. It was not until gold retraced the first big sell-off back above $200 did the gold and silver stocks start there historic bull market that would end at un-imaginable prices.

Some examples were: Lion Mines - 1975 price $0.07 / 1980 price $380 YES that's right it's not a misprint you could of bought 10,000 shares of lion mines in 1975 for around $700 dollars and if you held on for the whole 5 years January 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 / 1980 price $430. Wharf Resources - 1975 price $0.40 / 1980 price $560. Steep Rock - 1975 price $.93 / 1980 price $440 Mineral Resources - 1975 price $.60 / 1980 price $415 . Azure Resources - 1975 price $0.05 / 1980 price $109.

No question about it, that was one of the biggest financial opportunities in history. I don't know of any other time in history, not even the dot.com bubble where in only a 5 year time span you could have turned so little money into so much wealth. "You only need to make one good investment decisions in your whole life to be super successful". I believe 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 silver than they were back then. The similarities between the 1970s and today are uncanny. See if you can find a copy of James Dines prophetic classic "The Invisible Crash" known then as the "Gold Bugs Bible". The book is basically a documentary case study of the stock and gold markets of the 1960's to mid 1970's. The things that Mr. Dines wrote about back then could have easily been written last week or talked about on MSNBC yesterday. Here are a few quotesA full-fledged panic away from paper money could start at any moment". Or how about this nice quote. "When people see gold and silver standing alone amidst the economic ruins, they will realize that we gloom and doomers were actually right". "Hopefully, eternal optimists will pay more heed to warnings the next time around". or "Too much paper has been printed in the past, and will have to be wiped out no matter what." "People say gold is useless. Not true. It is demonstrating its function right now for all to see. Gold is the ballast for the monetary printing press and gold will relentlessly punish all offenders" The list of timeless quotes goes on and on but I will leave you with one last quote that is very relevant to today's problems in the U.S dollar and the so called economic rebound. "It beginning to dawn on some people that to defend the dollar and avert a dollar crisis, U.S interest rates will have to go up; or money will be transferred from the U.S to England, Europe, Australia Japan or Canada to take advantage of higher interest rates and stronger currency, . However, if interest rates go up sharply it will choke off our recovering economy. What a dilemma!" The similarities between now and then are simply uncanny. All of these quotes tell the real story of why gold (and silver) were so important throughout history and that history always repeats it's self. These quotes are the real fundamental cornerstone of why gold is in a bull market today and why the current rally in the general equity markets is only a bear market rally based on 45 year low interest rates, (that can't last), several tax cuts and the FED flooding the world with fiat dollars!!.

Now that the Fed is being forced to raises interest rates, to save the dollar among other reasons; the stock markets, bond markets, housing markets and credit markets and finally the oil market will, shortly implode once their respective breaking point are reached. For your own information I recommend you read "The Dollar Crisis" By Richard Duncan. If you want to know why gold and silver will explode in value you must have the information in this book. Here is one example "Balance of payments deficits of an unprecedented magnitude have resulted in credit induced economic over heating on a global scale. The foundations for sustainable economic growth will not be restored until this flaw is corrected and the U.S. trade deficit ceases to flood the world with U.S. dollar liquidity. The only way to stop the coming decline in the U.S. dollar is for the FED to raise interest rates. But if they raise rates they will cause a simultaneous crash in multiple markets (stock, bond, housing, credit). Only gold and silver and the companies that take it out of the earth will prosper in this environment, no matter what the FED does. Greenspan has painted himself into a corner that I believe he will not be able to get out of. Investing in gold and silver shares and the physical metal now and holding them for the next 3-5 years could be the only major financial decision you may ever have to make in your entire life. No need to trade in and out. Just buy a basket of gold and silver stocks now or on any temporary sell-offs and wait until you see headlines in the newspapers similar to the one that I opened this essay with. Or scale into any precious metals mutual fund. Remember, when that front page story which ran in January 1980, 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 when only a few years earlier you could have bought the same stocks quietly for under $1. As of now I don't know of even one gold or silver stock that is anywhere close to trading at over $100 per share.

I know it's hard for most people to think that gold and silver will surpass their old January 1980 highs of $850 for gold and $56+ for silver, but that is what a 20+ year generational bear market will do to a whole new age 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 emotion swings and paper assets really start to fall hard the lust and fervor for real assets will be unbelievable. The Dot.com bubble will look like small potatoes compared to some of the up coming gains in the first 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 supply and demand and a object FEAR to protect one's savings from paper destruction combined with GREED to get in on a sure thing. When the entire world wants a piece of the gold and silver bull market there will only be a relatively very limited supply of shares, so they will have to be bid them up to unthinkable levels.

TOTAL EQUITY OF ALL GOLD STOCKS combined is less that the total equity of IBM. It is estimated that their are over $2 Trillion in hedge Funds alone (not counting Leverage). Can you imagine what happens if suddenly they wake up and begin a rush to Gold.. The gold and silver stock sector is very small compared to the bond and stock markets and it won't take much buying to push these stocks into the stratosphere. I am sure that most of you have friends that can't name even one Gold stock; But I'm also sure that in 3-5 years they will be touting you about the latest hot gold new issue out of Vancouver, even though they don't know where Vancouver is.. That will be the first major sign that the top is near.

I firmly believe that the opportunity in gold and silver and the companies that mine them may be presenting a once in a lifetime opportunity, where even a modest investment today could change your financial destiny.

NEAR-TERM OUTLOOK

Plain and simple; Gold Shares usually lead Gold Bullion both up and down. Check out their respective Charts. Gold Shares look to me like they have already bottomed and have begun the first leg of the next stage of the ongoing Bull Market. While Bullion is still in its consolidation phase, it's nearing completion of what in my opinion, using Elliott Wave analysis, is a declining a,b,c,d,e, wave (4) triangle. My best guess is that the low (if it has not already been made) will be in the $410 to $420 area, You can wait for a confirmed low in Bullion if it will make you feel more comfortable, as long as you are prepared to pay 20% to 50% more for your favorite gold stocks, once Gold Bullion breaks out to new recovery highs. It takes guts to stand alone against the crowd, but that's what you have to do if you want to buy low. Who among you can really expect to do better than to get in within 5%- 7% of the beginning of the next major move? However since we are still very early into the biggest GOLD BULL MARKET to come in history and if sleeping better is more important to you, than wait for Bullion's conformation of its resumed bull market and then buy. BUT do not let buying the stocks at new breakout highs stop you. Just treat them like Investors Business Daily has been treating new breakout highs for the last ten years.

THE TRIGGER

We can never know until after the fact what triggered the recession/depression. Is it possible that the idiot Schumer goaded China into cutting off its nose to spite its face, and begin the process of the collapse of both the US $ and the worlds economy?

 

Aubie Baltin CFA, CTA, CFP, Phd. (retired)

Palm Beach Gardens, FL

[email protected]

561-840-9767

 

22 July 2005

Pure gold is so soft that a strong man can squeeze it and shape it.

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