Saturday, December 12, 2009

Hello, Goldbugs

If anybody wants my opinion, here it is. Almost two years ago, gold topped out at $1034 an ounce before retrenching. A few months later, gold started looking like it would continue its run up. That's when I bought in to gold stocks. Gold was about $890. I made quite a bit of money, right off the bat as gold advanced about $100. I was feeling pretty good.

Then it started down again. I couldn't believe it would go much farther down than where I had bought it, so I hung tough because by that time I had a pretty nice cushion. That cushion was gone in a couple of weeks and before I knew it, I was deeply underwater. I decided to ride it down, because I knew if I got out, I would never have the guts to get back in at the right time. By the time gold bottomed at $680, because gold stocks are leveraged to the value of gold, I had lost about 2/3 of my original investment. Nice work, Dave.

So I sat for almost a year, while gold worked its way back up. Unfortunately, gold stocks, while they advanced spectacularly from their lows, never really took off ahead of the gold price. I didn't break even until gold was $100 an ounce higher than I had bought in at. Then, every time gold would fall back, the stocks would fall back twice as far. When gold would advance, the stocks would never really catch up. I ended up breaking even again several times, always with gold at a higher price. It wasn't until gold was close to $1100 that I was substantially ahead. The stocks weren't really going into overdrive until about a month ago and then two weeks ago trading started to get choppy. I should have got out then but I was convinced gold still had a ways to go. Always the optimist.

At the $1227 peak, I was about $100,000 up, a little more than 20%. I got out at the end of trading Thursday, with about half my winnings. All out.

Now, I am convinced that the American dollar is toast, the American economy is shit and that gold is the best long term investment but have come to believe that the road from here to there is not a straight line. I'm old. I want to maximize my investment returns.

Gold may resume its run very soon. If it moves convincingly across the $1227 threshold, I'll buy back into stocks. I may be crazy but I still think they are the way to play gold. If I had bought into stocks at the bottom, a year ago, I'd have tripled my investment. Given the profits they will make, even at $900 an ounce, they are massively undervalued.

Gold is vulnerable at this point. If buying interest is not heavy and the dollar index rises, it could easily fall back below $900 an ounce and the miners will get hammered much harder. If, at that point, Bernanke starts to aggressively raise rates, it could go back to $700. I would not put it past the little cocksucker. If I was him, that's what I'd do. If that day comes, I would rather be there for the buying opportunity, with money in my pocket, than at the end of another long ride down, waiting to get well.

If you own physical gold and have made a decent gain, I don't think you have anything to worry about. Over the next decade gold is going way up and the dollar is going way down. Shorter term may be a different story. There is still money to be made in gold and even worst case, its better than dollars printed by the trillions to support a welfare state, full of fat, lazy, type II diabetic, cretins.

Good luck to you. I'm waiting to see what happens next.


beebsblog said...

Geez, I don't know. The currency is toast, I no longer predict the "when."

I think the US will continue printing until we run out of trees. A portent of this is that we are printing money to buy our own bonds. The code words used to describe this are quantitative easing.

wcv said...

I dollar-cost average into a miner fund to take advantage of the volatility.

I sold some GLD on 12/4, and will buy more coins if we get a bigger pullback.