OK, your point is well taken and I think some comparisons are key here. Remember what a disappointment 9/11/2001 was for gold bugs? Gold was capped below $300 and then corrected back down. Then remember how wonderful 2002 was. Remember what a disaster the 1987 crash was for gold stock owners (Newmont was down 80% and the XAU was hammered). There was a boom in gold mining and exploration in 1988. An important point that I have seen made lately is that these events cause panic deleveraging and there tends to be very high levels of margin in paper gold contracts on the Crimex futures exchange. Paper gold is a victim of the panic while physical gold is bought. On reflection, it seems that major geopolitical and economic shocks are always a ST to IT sell for gold and the associated spike in the gold price tends to disappoint. The subsequent correction is a psychological low and an absolute buy signal.
Jan 1980 was one exception. The Iran hostage crisis was implicated as the cause of a gold spike that stunned everyone. I have never read of any attempts to cap that spike. It was used as the starting point for the US Fed (Volcker) to finally do the right thing and raise rates to quell inflation. That was the ultimate long term sell for gold. I see no comparison to that yet. The US govt is still trying harder and harder to solve a debt problem with more debt and to hide inflation problems.
Let's look at the fundamentals. The gold mining sector is already hurting here and gold exploration is totally wiped out. Gold mine production is falling and if gold falls further it is going to really plummet. Yes, there are huge above ground stocks and sales from these will provide supply, but I think the people holding this gold are not prone to selling it at this point in the world economy. There is an economic paradigm shift going on and it will take time. Debt has been the common man's friend and the government's saviour, but the pendulum has swung too far. Events could not have been crafted to resemble the 1920's much better than they do now. The present crisis is probably our 1929.
The 1929 crash was a huge shock to the system, but the stock market retraced about 50% of the crash by early 1930 and there was great optimism at that point from what I have read. The real damage was done in the grinding bear market from 1930 to 1932. I think that is what we have to look forward to and the shorting bans that are popping up just about guarantee this. As people become debt adverse and then debt phobic, I think fiat currencies will fall, because fiat currencies are nothing but debt. I think hard assets, especially gold, will be the way to preserve wealth, but I don't think we should expect some kind of gold stock mania. The psychology is not going to be conducive to a mania. My guess is that a grinding bear market for stocks due to multiple compression and a grinding bull market for gold producers and asset plays and successful explorers lies ahead. The US is going to need to recreate its industrial base and take advantage of it's natural resources, so it can export again. The current account deficit must be unwound. Wall St hates commodities and that is another paradigm shift in the making. Technology is not going to find us vast supplies of metals and oil to the extent it has in the past, at least not at current prices.
Sorry for the tome. I wanted to focus on gold, but have too many pent up delusions. We will see if any of them come to pass. Most of my thinking is based on research not experience. These paradigm shifts do not happen until the vast majority have forgotten the prior one. Writing these tomes helps me organize my thoughts and catch some of my misconceptions. |
