Friday, September 17, 2010

Reasons Gold Prices May Take Off

Moses Kim explains some reasons why he thinks gold prices are about to take off, including the decline in public confidence in government management. He dismisses claims of a gold bubble because only a small percentage of Americans are currently invested in gold. See the following post from Expected Returns.

New record highs in gold and fresh evidence that intelligent life doesn't reside in the land of deflationists and gold bubble experts. Having faith in the forecasts of gold bubble experts who have been wrong year after year is like having faith in our government's ability to responsibly manage its finances. It's foolhardy, and it evidences a lack of good old horse sense.

Make no mistake about it: The gold rocket launch is underway.

This is going to be a historic move. Most of you will sell too early. Financial experts who have missed this entire bull market (which should give you a clue as to their investing ability) will tell you gold is a bubble. They will refer to all the commercials about gold; the "expensive" price; and the fact that the worst of the economic downturn is behind us. Of course they are absolutely braindead and need a lesson in what bubbles actually are.

Gold is not a bubble. How do I know this? Let's try a little test. Amidst all the ruckus about an incipient "gold bubble", how many people do you know who are adding either gold shares or physical gold at these levels? And I'm not talking about the ETF GLD, I'm talking about the real stuff. 1% of the people you know? 2% maybe? And this is a gold bubble? To me, this is called the smart money adding while the dumb money gets left behind. This happens all the time in markets. All the time.

Bull markets are known to climb a "wall of worry." When the average person starts telling me what a great investment gold is, then I'll know it's time to start selling. But the average person still thinks the price of gold is driven by jewelry demand. The average person still thinks gold is a hedge against inflation. The average person sees the light at the end of the tunnel and doesn't realize it's a train. Truthfully, the average person should stay away from the markets lest they be crushed due to their own ignorance.

I am telling you the truth: Gold is the purest hedge against government fiscal mismanagement. Period. I can tear down any argument to the contrary in about 5 seconds. Now let me ask any American reading this blog if your confidence in your leaders is rising or falling. And if it's falling, is it falling quickly or slowly? Where are the jobs? Where's the economic recovery? Why is housing stalling? Why is our debt rising astronomically? These are all things I foretold to the derision of others. But jeez, I was just revealing the truth behind the data.

The collapse of public confidence is a dynamic process. What I mean is that the collapse of confidence will hit that proverbial "tipping point." At this stage, things are going to get nasty. There will be asset moves that boggle the mind. Human psychology will drive this next leg up in gold.

The bond market is in the middle of a multi-week reversal. A rise in 10-year yields above, say, 3.5-4% and you can turn out the lights. You will then see gold pick up new rocket boosters. You will never see so much scared money flood out of bonds and into tangible assets. If you are positioned correctly, you will be planning your retirement.

I honestly don't think I have to defend myself at this point; my track record speaks for itself. But I know for a fact there are still people who don't believe me. There are people who have never invested a dime in gold who try to lecture me about why the reasons I lay out for gold's rise are incorrect. Frankly, these are the type of people I fade. I only take people who invest real money seriously.

This is getting serious. I will try to walk you through events to the best of my ability, but even I expect to be blindsided by some of the things that happen. This is a bear market in public confidence. Therefore, surprises in public confidence will come to the downside. Gold will act as a counterweight to public confidence. Therefore, surprises in gold will come to the upside. I've been trying to prepare you for the gold rocket launch for some time now. Well guess what? It is here.

This post has been republished from Moses Kim's blog, Expected Returns.

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