Gold prices recently dropped roughly $100/ounce. Though dramatic, it reflects a return to prices just one month earlier. No worries.
I’ve sold about a fourth of my holdings in case of a further surge in the dollar. If there’s another downturn in gold I can get in at a lower price. (All of this is inside a 401K retirement account, so there are no tax consequences for short term buying and selling.) I’m keeping the other three-fourths core position because I expect gold to hit $2-3000 by 2012.
Here’s Eric Janzen’s take on the recent dip:
If I sell gold today, what shall I buy with the cash that is not as expensive or even more expensive than gold?
In 1980, when gold peaked at $3,000 in 2009 dollars, investors had the option to sell gold and buy a 30-year Treasury bond that was so cheap they’d earn 15% interest until the year 2010. Today, when gold is supposedly a “bubble,” a 30-year bond earns only 4.3%, maturing in 2039. Is that cheap?
What’s cheap? Stocks? Corporate bonds? Real estate? Emerging markets? Commodities? Oil?
In the Asylum Market, all asset classes are correlated to government policy to dish liquidity to minimize the macro-economic impact of the latest crashing asset bubble and halt the process of asset price deflation and default.
Our mantra is buy cheap and hold for many years. But inside the Asylum Economy, nothing is cheap, and no asset can be held for long. The fundamental premise of our investment philosophy is thwarted by the end result of years of insane government and central bank policy: assets that are no longer correlated to each other but to government.
Like inmates trapped inside an asylum built and run by madmen, we struggle to adapt. Some of our fellow inmates do not even see the walls around them. They accept the noisy, chaotic confines as normalcy, or perhaps the new normalcy. The aware try to make rational choices from among a limited array of assets that circulate within the asylum’s confines like cigarettes, toilet paper, pills, and shanks inside a prison. Which shall we choose, or can we create a balanced portfolio of 20% cigarettes, 10% toilet paper, 40% drugs, and 30% shanks to keep our savings safe?
My message to the well meaning new gold “experts” is this: it’s not that gold has become such a terrific investment since 2001 when I told readers I was buying it, it’s that the alternatives have gotten so horribly bad since then. The inexorable logic of global geopolitics that developed since 1971—and decades of inbred economic and central banking orthodoxy—has made them so.
Previously
- Gold hits another all time nominal high of $1,059 Oct. 7
- Gold hits another all-time nominal high of $1,088 Nov. 3
- Gold hits another all-time nominal high of $1,213 Dec. 2
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