Market Overview

3 Reasons You Shouldn't Wait For $1,000 Gold

Share:
3 Reasons You Shouldn't Wait For $1,000 Gold
Related GLD
Carter Worth And Mike Khouw's SPDR Gold Trust (ETF) Trade
Steve Sosnick's Gold ETF Trade
Related GDX
Snap Inc, Tanger Outlet, Gold And India: Fast Money Picks For May 22
Starbucks, Gold Miners, Utilities And More: Fast Money Picks For May 18

Don’t wait for gold to hit $1,000.

Why?

Because it may not happen.

And even if it does, $1,000—or any price tag in your mind—won’t guarantee the actual bottom. The biggest risk is that you don’t pull the trigger at all.

It’s not supposed to be this way, but buying or selling an investment is usually an emotional thing. Let’s be honest, if gold hits $1,000 and everything you read is negative—the downtrend remains strong, TV pundits project $900, and even some gold bugs admit it could go lower—would you really buy?

Most would hold off out of fear it might go lower.

Almost every article I read in 2015 said gold was headed to at least $1,000 by year end. Downward momentum was strong, press coverage was very negative, and I was hard pressed to find one price projection that wasn’t lower.

But it didn’t happen. I’m not saying we won’t hit $1,000. I’m saying the crowd is usually wrong. And that investors are usually too emotional.

I’m also saying that $1,000 is a tad too convenient…

Many investors think prices tend to hit big round numbers, and many projections are made around them. But when it comes to gold, that hasn’t been the case…
➢ In the mania of late 1979/early 1980, most investors believed the gold price would soar $1,000. It never did (until 38+ years later).

➢ In 1976, most investors assumed gold would fall to $100. I read newspaper articles that showed many pundits believed it was a foregone conclusion. The reasons were similar to today—a strong downtrend, negative press, and lack of upward momentum in spite of catalysts. But gold never touched $100 again.

The lowest it got was $104 on August 31 of that year, roughly 4% above where everyone assumed it would land. That may not sound like a big difference, but the point is that all those bids at $100 never got filled. Everyone waiting for $100 was left high and dry.

And check this out: that 4% difference is, so far, the same as today—gold’s low point was $1,049 on December 17, 2015, also roughly 4% away from the prevailing $1,000 assumption.

➢ In the spring of 2001, most investors were convinced gold’s bear market would continue, assuming the price would fall to at least $250, if not $200. Not just because downward momentum was strong, but also because it was heading into the weak summer months after the end of a seasonally strong period.

But gold never reached $250 and instead bottomed at $255.95. It left all those bids at $250 unfulfilled and those investors waiting for $200, confused and scrambling.

➢ In 2011, most gold bulls assumed the price would hit $2,000 (I admit I was one of them). But the closest it ever got was $1,921, also 4% shy of the big round number and everyone’s assumption.
Again, I don’t guarantee gold won’t hit $1,000. But history shows that big round numbers haven’t always represented major turning points.

In addition to this history, there are some compelling arguments that suggest gold’s low is indeed in and that you should buy now. Or at least follow the strategy I outline at the end.

So, why shouldn’t you wait for a $1,000 gold price?

#1. Because History Says Gold Will Be Up This Year

Through 2015, the gold price has fallen three consecutive years. The last time this happened was from 1996 to 1998. And since becoming legal to own again in 1975…

Notice how the gold price performed after the only time it fell three consecutive years: it was up for five straight years.

Investor Message: Odds are that gold breaks its downtrend and ends 2016 higher. From a historical perspective, this means that buying gold now is a low-risk proposition.

#2. Because Gold Bears Have Lost Interest

Short interest on gold has been high since 2013. But that’s changing.

The number of bearish bets on GLD (SPDR Gold Shares, the largest gold ETF) have plummeted. Through December 2015, the put-to-call ratio is now at its lowest level since 2008.

In other words, many investors that have been bearish have closed out their bets. They see less opportunity to make money from a falling gold price.

Investor Message: With fewer bearish bets, the gold price has less downward pressure.

#3. Because Successful Hedge Funds Are Buying

It hasn’t been widely reported, but some big-name hedge fund managers are gold bulls…

  • Stanley Druckenmiller, Duquesne Family Office, former chief strategist for George Soros: at the end of the third quarter in 2015, he owned 2.9 million shares of GLD, one of the 10 largest holders of the fund.
  • John Paulson, Paulson and Company: his company has owned gold for many years, and its current position consists of 9.2 million shares of GLD. At $1,000 gold, that’s about $920 million!
  • Ray Dalio, Bridgewater Associates: He allocates 7.5% of the fund’s portfolio to gold. He also owns shares in Newmont Mining, Barrick Gold, and Goldcorp.
  • David Einhorn, Greenlight Capital: Like Paulson, he’s owned gold for several years. He also owns six million shares of GDX, the gold miners ETF.
  • Carl Icahn, Icahn Enterprises: it disclosed last August that it owns 8.5% of gold and copper producer Freeport-McMoRan.
  • Jeffrey Gundlach, CEO of DoubleLine Capital: He’s owned gold for at least several years. He also stated earlier this month that not only has gold hit a bottom, but that it’s poised to surge 30% this year (from its then price of $1,090). The article noted that, “Gundlach was one of the first to predict the sharp oil price crash in the fall of 2014 and then the junk bond turbulence of 2015,” so his opinion is worth listening to.

These are some of the most successful hedge funds in the world and they apparently aren’t worried about the possibility of gold falling to $1,000.

Investor Message: Some large funds and successful money managers are betting big on gold right now. It’s not because they think gold won’t fall to $1,000; it’s because the need to own gold right now far outweighs the possibility of it falling another 4%.

There Is a Way to Minimize the Risk…

Whether you think gold’s bottom is behind us or not, understand your risk. If it does reach $1,000—and that’s a big if at this point—the temptation to stay on the sidelines will be great.

And if it doesn’t fall to $1,000, similar to the historical examples above, you’d be forced to buy gold at a higher price.

There is a more effective way to invest…

Until recently, you couldn’t really dollar-cost average your gold purchases unless you drove to the dealer every month or mailed a check to your favorite web dealer every time you got paid. Not very convenient, and as a result most people don’t do it consistently.

But now you can. Once you open an account through the Hard Assets Alliance and sign up for the MetalStream service, you can automatically purchase gold (or silver) every month. No monthly reminder notes required.

This way you don’t need to worry about whether the bottom is in. If it isn’t, you’ll get more ounces for your investment dollars. If it is, you’re already in.

Remember, gold is not a short-term investment. We’re not playing a “turnaround” story or speculating on some stock going higher. Gold is a core part of a diversified portfolio that offers crisis protection you can’t get elsewhere and is uncorrelated to the stock market (i.e., gold tends to rise when the stock market falls).

It’s your own personal hedge against any event or trend that could impact your standard of living. That’s worth owning, regardless of the risk of a 4% decline.

I suggest that we stop worrying about whether gold will hit $1,000 and invest now.

This article was originally published at Hard Assets Alliance

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Long Ideas Specialty ETFs Commodities Markets Trading Ideas ETFs Best of Benzinga

 

Related Articles (GDX + GLD)

View Comments and Join the Discussion!