19 Reasons Gold Has Probably Bottomed
Freemarket Gold and Money Report - June 29, 1998
Investing requires taking action based on a calculation of probabilities, not certainties. And right now the probabilities suggest that the bottom for gold has already been reached.
By implication, we can conclude that a new bull market in gold is beginning right now. Hard to believe? Well, yes, frankly it is hard to believe, but that is already reason number one.
1) Bullish Consensus. Bull markets end when most everyone is bullish. Bear markets end when most everyone is bearish. This extreme level of bearishness signals that a turn is at hand.
2) M3 Growth. M3 continues to grow at an alarming rate. The annual rate was 11.1% in the week ending June 15, another 13-year high.
3) Treasury Intervention. The demise of Mr. Rubin's strong dollar policy will cause money to flow away from the dollar, and towards gold along with the Swiss Franc and possibly the deutschemark.
4) Japan. Given the nature of the world's banking system, problems in Japan will have worldwide ramifications, all of which will be bullish for gold.
5) Asia. The comments above regarding Japan apply to most of Asia.
6) Derivatives. Derivative losses will add to the growing fear about the insolvent nature of many Asian banks, which will cause depositors to take money out of the banks and convert it into safer vehicles -- like gold.
7) Currency Depreciation. Many currencies around the world are collapsing. More currency bad news can be expected immediately ahead.
8) Currency Instability. After a period of relative calm, exchange rates are again becoming more volatile.
9) Fear Index. The present extremely high level of confidence in the U.S. dollar is unsustainable. Fear will soon be rising, along with a rising gold price, particularly as the stock market falls.
10) Stock Market Top. Falling stocks will increase the level of fear, which will in turn increase the flow of money to gold.
11) Formation of the ECB. Fear of European dishoarding will be lessened; along with this decline, people will increasingly move some of their wealth into gold.
12) Interest Rates. Key interest rates around the world are out of line. U.S. Dollar rates are too low. Yen rates are way too low. The relationship of various interest rates will return to normal levels, which means the gold price is destined to rise.
13) Technical Considerations. There are many positive technical factors that are bullish for gold.
14) US Trade Deficit. Record deficits lie just around the corner. These deficits will weaken the dollar and strengthen gold.
15) Foreign and Domestic Debt. The US is flooding the world with dollars by importing countless foreign-made products and exporting dollar denominated IOU's.
16) Gold Production. The output of newly mined gold is expected to remain stagnant.
17) Commodity Prices. Commodity prices will begin rising from here, which will have a bullish impact on precious metal prices.
18) Credit Risk. Credit risk has been ignored, even forgotten, since the early 1990s The public will recognize that the level of confidence today in the banking system is ill-founded, so they will shift money out of currencies into gold.
19) Great Value. We have seen unprecedented bearishness. Things, however, do change eventually, and it now looks like the time has finally come for a change in precious metals' rises.
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