Buy Gold Now!

March 11, 2009 Gold Stocks, Market Movers, Physical Gold No Comments

Gold is holding the line at $90o which means it is time to buy gold and to buy gold stocks. This may not be the bottom of the recent pull back in gold, but it is time to buy gold!

The DOW is currently up 2 at 6928, the NAS up 13 at 1,371, while the dollar is down .50 (.65%) at 88.12 and gold has bounced off the $900 mark, after having closed below it yesterday, up $11.70 at $909. I guess the euphoria over the first “good” news in a while has faded away.

Central banks around the globe are buying gold again with a net increase of 1.1 million ounces in January according to the CPM Group, the New York based metals consultancy group. The central banks both bought and sold gold, but the buying outweighed the selling. Ecuador purchased 920,000 ounces, Venezuela 240,000 ounces and Russia purchased 130,000 ounces. France was the largest net seller of gold in January, cashing in 40,000 ounces. For some reason, France running against the grain does not surprise me.

Centrsl Banks Are Buying Gold

I ran across this piece by Patrick A Heller, Market Update this morning. I think it nails it and that you should consider it seriously.

What do the following industry-leading companies have in common?

Alcoa, AIG, AMBAC, American Express, AMR (American Airlines), Bank of America, Bear Stearns, CBS, Citigroup, Countrywide Credit, Delphi, Dow Chemical, Eastman Kodak, Fannie Mae, Ford, Freddie Mac, Gannett, General Electric, General Motors, Goodyear Tire, Harley-Davidson, The Hartford, International Paper, JDS Uniphase, Lear, Lehman Brothers, Liz Claiborne, Macy’s, MBIA, Merrill Lynch, MetLife, MGIC, MGM, Motorola, JC Penney, Prudential, Saks, Sears, SprintNextel, Tenet Healthcare, UAL (United Airlines), United States Steel, Wachovia Bank, Washington Mutual, Whirlpool, and Xerox.

The answer: Since the middle of 2007, all of these companies have seen their stock values decline by more than 80 percent.

At the close of markets on June 29, 2007, gold was at $648. Its price now is more than 40 percent higher than it was then. Gold has outperformed the stocks in these companies by at least seven-fold in the past 20 months.

This example is a perfect demonstration of the number one reason to own gold. The best purpose for owning gold is for insurance against calamities that may affect the values of paper assets. The concept of owning insurance is not to make a profit by collecting on it (no one wants to be in a car accident, have their house burn down, lose valuable possessions to burglars, and so forth), but to have some protection just in case bad things come to pass. Gold serves to preserve and protect wealth.

Gold provides a stable form of money to facilitate commerce. An ounce of gold may temporarily hold a particular exchange rate versus dollars, pounds, euros, pesos, yen, francs, etc., but the value of these fiat currencies can and do change, usually downward. So far in history, there has never been a paper currency that has not eventually failed. In contrast, an ounce of gold from six thousand years ago is still worth an ounce of gold today.

Physical gold in your immediate possession is an asset that is not anyone else’s liability, so it has no counter party risk. While the value of gold can fluctuate as measured in paper currencies, it has never suffered as much as these stocks of the companies listed above.

Just something to think about. We live in very unsettled times and the the need for gold is growing every day. I believe that the next move up in the price of gold is just around the corner. On Monday I purchased RGLD at $38.10 and on Tuesday it went down to the low $36 range. Did I beat myself up? No, I was looking for another entry point. Today rolls around and RGLD is trading at $38.18. My point is that no one can pick the low on a stock without a lot of luck. You might as well bet your future on the lottery because the odds of picking the exact low are probably the same. What you have to do is find a range in which you are comfortable about getting in and not put all the cards on the table in the same play. Always hold some reserves in case something unforeseen enters the equation and changes the playing field. My gut feeling makes me comfortable buying RGLD from $38 on down because I don’t feel it will go too much further down. If it does I will accumulate more.

The first assault on the down side of $900 has failed which makes me very comfortable with my model. The time is now to buy gold and to buy gold stocks. Market psychology makes it difficult to buy things when they are going down, but the underlying fundamentals in gold make this the perfect time to buy gold. I would not buy most general equities in the middle of this economic crisis because their fundamentals stink. Gold is a completely different animal and this latest retracement is a golden opportunity to pick up quality stocks at bargain prices.

Till next time, good luck and good trading!