Doug Casey weighs in that we have mania coming. Maybe he is right this time. <g>
You've heard the arguments. But all the while, the mining stocks keep moving higher. And because of their immense internal leverage, many are quite underpriced relative to the metals they produce (or hope to produce). So, we're still in the Wall of Worry phase. When will it end? Hard to say. But my guess is fairly soon. Then we should enter the Mania phase.
All great bull markets end in a mania. It's interesting to contemplate why this is; books have been written on it. In essence, however, it's a matter of psychology and economics. Psychologically, when people see others making a killing, they can't help but join the party. Especially if there's a credible reason why it's a good idea. The nice thing about this gold bull market is that the story of why gold is going up not only tells very well, but very few investors (in today's world) have actually heard it. That means almost nobody owns gold. And that's good, because it means the only thing they can do is buy it.
The coming mania for gold stocks will, I suspect, be extraordinary for a number of reasons. One is that, due to the huge bull market in common stocks from 1982 to 2000, absolutely everyone who has any spare capital at all has opened a brokerage account. They all got involved in the Internet and tech frenzy and saw that it was possible to make money in the stock market (even though very few actually did). They're primed for another go at getting rich quick.
Meanwhile, economically, the conditions are right for a mania in gold stocks. The government has no option but to continue a massive inflation of the dollar. And inflation inevitably does two things, among others: 1) create a speculative psychology among the public, as they search for some way to beat the debasement of the currency, and 2) direct people's attention towards hard assets. And in terms of market value today, most mining stocks aren't even micro-caps. They're nano-caps.
The world's total market valuation of publicly traded gold equities adds up to only about $150 billion, or just .0033 of the $45 trillion combined value of the world's equities.
When - not if - even a fraction of the bigger investment pie starts to shift toward gold stocks, these stocks should move at least as explosively as the tech stocks did. My feeling is that what we'll see in mining stocks over the next few years will be something for the record books.
Regards,
Doug Casey
for the Daily Reckoning
321gold.com |
