Editor’s Note: Rich Checkan is president and COO of Asset Strategies International, one of today’s premier providers of rare U.S., world and ancient coins, rare stamps and rare strategic metals. As an expert with a finger on the pulse of the physical metals markets on a daily basis, Rich is kindly providing us with his views on the current state of the gold market.
Why Would You Ever Consider Buying Gold Now? Because You’re Smart…
A Guest Editorial
By Rich Checkan Dear John, Let’s face it: Gold is out of favor. In fact, at least from a physical demand standpoint, in recent years the metal has been as out of favor as I have experienced in over two decades in this business.
One mint representative recently suggested to me that all you need to do is add some flowers to the production floor at their mint, and you wouldn’t be able to tell it apart from a funeral.
The Dow and S&P 500 are chugging along in an unprecedented eight-year bull market. In my opinion, two things are driving the over-priced equities markets right now… 1. Greed. Investors are letting their profits ride in the hopes the bull will never end. If this is the motivation, good luck. We know how that story ends time after time. Bears follow bulls…always.
2. The desire to retire. Today, there are plenty of investors out there who hoped to retire and start smelling the roses in 2008, 2009, 2010, 2011...
They are still at work now in 2017 thanks to the 40% haircut their retirement portfolio took in the 2008-2009 crisis. I can sense the desperation as they let their equities profits ride in the hopes of finally retiring. Whether the driving force is one of these or some other, money has been flowing where it has been treated best for the past eight years — into equities. No one is being scared by 23,000 on the Dow. Historically high P/E Ratios are scaring nobody away. Rising stock prices for companies losing money like there’s no tomorrow are scaring nobody away.
As Brien mentioned in a recent newsletter, the markets are reacting to short-term bets placed by fast-money investors based upon little bits of news here and there. Fundamentals aren’t driving markets. Sentiment is.
Thus far this year, the Dow is up 18%, the S&P 500 is up 15%, and the U.S. Dollar Index is down 8%. Gold is holding up well considering it is so out of favor…up 11% since the start of the year.
And, although you wouldn’t know it from the daily, record-breaking headlines for the Dow and S&P 500, gold has kept pace with equities over the past decade: up 67.9% versus 67.5% for the Dow and 66.2% for the S&P 500 over the same 10-year period.
Golden Opportunities continues below...
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Gold Is Relatively Cheap Everyone knows how to make money with investments. You buy low and sell high.
Of course, the trick is to identify when the investment you are considering buying is low. For this, I look to the guidance of one of the best investment minds of all time, Bernard Baruch.
I’ll paraphrase here, but Mr. Baruch once said, he didn’t care about the first 20% gain in an investment, and he didn’t care about the last 20% gain in an investment. All Mr. Baruch cared about—all he wanted—was that 60% gain in the middle.
There is wisdom here.
By foregoing the first 20% gain, you are giving that investment the time to clearly establish the upward trend. That 20% gain is enough to filter out false fits and starts. You wait for the trend to be established before committing capital.
By giving up the last 20% of an investment, you pull your capital back as the investment enters that dangerous area near the top, where valuations are out of whack, and the risk of a major correction escalates.
The sweet spot is the 60% in the middle — where the trend is clear and the risks are lower. I believe we are there with gold, even though it remains completely out of favor. Is $1,300 Per Ounce High? I hear this quite a bit. The perception out there right now — and it is a big reason why gold is so out of favor right now — is that gold at around $1,300 is high.
Of course, over the past two decades, I remember hearing how gold at $250 per ounce was high. I heard the same at $500, $750, $1,000, $1,500, and $1,900 per ounce.
But, if you look at the recent lows for gold in December of 2015, it was trading right around $1,050 per ounce. The all-time highs for gold were near $1,900 per ounce. I would suggest we are much closer to the lows than we are to the highs, regardless of the perception in the minds of investors. The Sweet Spot In fact, getting back to Bernard Baruch, $1,300 per ounce gold is roughly 23% above the recent lows.
My friends, as I see it, we are in the sweet spot — the 60% zone, which was all Bernard Baruch wanted. Couple that with the pervasive anti-gold sentiment in the markets right now, and I think you know what I am doing here. Do you believe investing in equities at 23,000+ on the Dow gives you the opportunity to buy low? What about gold at $1,300 per ounce? Do you believe investing in equities at 23,000+ on the Dow minimizes or increases your risk to capital? What about gold at $1,300 per ounce?
For me, there is no doubt where my money will be treated best going forward. The smart choice is gold…here…and now. Do yourself a favor, rebalance now. Skim profits out of equities, and use them to buy out of favor gold at these attractive levels.
At present, it is the best strategy I know to “keep what’s yours!”
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