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| Why Buy Gold Now 1987 to 2003: From bear to bull The case for gold has played out for the past 6000 years. History has shown that long-term trends last many years and that the long-term trend for gold is up. Also, history has shown that the only real money is gold and all paper currencies (fiat money) eventually become worthless. The bear market for gold that started in 1988 ended in 1993. The upswing that followed lasted from 1993 until 1996 and culminated in what may be called a false breakout. Then, another bear-market unfolded, taking the gold price down to $250 per ounce over a period of almost four years. Then, came the spike in the gold price as a consequence of the central bank's announcement that they would be limiting gold sales. The 1999 bottom was tested again at the beginning of 2001. At that time, when few believed that any money should be put into precious metals, the present bull market started; a bull market I believe is still in its infancy. I was keen on gold when it was below $300, and am still keen on gold below $400, and I can tell you I will be keen on gold below $500. A friend with a web site that goes out to 500,000 readers recently said, "Buy gold below $350 and more when it's over $350." While nobody can accurately foresee how long it will take to overcome the resistance zone around $400, by extrapolating the trend, I conclude that it may happen within the coming months and certainly sometime next year. Back in February, the gold price briefly touched $388.90, a quick spike probably caused by some short covering. This apparent overreaction to the upside is oftentimes followed by an overreaction to the downside. This is what happened when the gold price fell to $320 in April. The gold price approached the $380 level again in June, but was unable to push higher. An orderly correction followed which stopped at $340. A break through the resistance of $380 seems to be possible and likely during the coming weeks. When you read what gold bulls write at present (Good friend, Doug Casey says in his recent newsletter, "I remain comfortable in calling for gold well over $1000 over the next few years..."), you sense that Doug and the other "gold bugs" all expect the imminent breakout and this is a bit of a cause to worry. If this disturbs you, talk to a main-street banker, and he will most likely tell you that gold is no place to be. I heard from one of the "Gnomes of Zurich" on a recent visit that this Swiss banker thoroughly discouraged a client who wanted to buy the bank's own gold fund - a good omen. |
