"The object of investing is to make money. That requires us to buy low and sell high. Right now US stocks are at record highs, long bonds are not quite at a record high but they are very high, and commodities are just slightly off their record highs. No buying candidates there.
In markets like this you could either be bold or defensive. I prefer to be bold when others are not and right now there is an oversupply of boldness, so I'm defensive. The ultimate defensive position is cash. For some that means US dollars, or Canadian dollars, or euros, or yen. For me the ultimate form of cash is gold since I believe gold is money, with one big distinction: it is not a floating abstraction created by a bankrupt government supported only by legislation and the confidence of a brainwashed population.
Gold is down more than 20% from its highs in May. With the gold price under $600 an ounce the metal is attractive once again, but don't interpret that to mean the gold price could not fall further from here. In the short term the biggest risk to the gold price remains the fact that base metals prices are way too high and when they fall they could drag the gold price down even further.
I would be ecstatic if the gold price fell further -- the lower the better. It doesn't matter that my current positions would decline in price because the intrinsic value of the companies I own, and the gold I have, would not change, and the lower the prices fall the less I have to pay for the same intrinsic value.
You panic and sell when prices fall only when you don't know the intrinsic value of your investments. When you do know what your assets are worth it is easy to sell them when they are over-priced and easy to buy more when they are under-valued."
-Paul van Eeden, "Back to Basics," 8 Oct 2006 |
