It is said that a picture is worth 1000 words, so let me paint you a picture. This is a chart that shows how gold stocks have been doing lately. What does it tell you? Do you see a trend? Can you recognize a bull market?
The 15 stocks that comprise the Gold Bugs Index are: NEM, GFI, FCX, HL, BGO, CDE, MDG, GSS, GLG, IAG, GG, AEM, GOLD, KGC and HMY. Since September 2001 the index has increased about 267%. Can you say Gold Stock Bull?
Go on, get on board. What are you waiting for? All the conditions that gave rise to this bull market in gold still exist. In fact, they have become more severe. This bull still has legs and is far from tiring. It will not slow until conditions change for the better. Unfortunately, they are destined to get much worse.
Step 1: Pick a handful of gold stocks and invest equal amounts of money in each. Just do it. Do it now, don’t wait…. There, that wasn’t so hard was it? Now enjoy the ride. The next step is a bit more difficult.
Step 2: Be patient! This bull is not even half over. So you missed the first part of the trip. On a train from New York to L.A. you can board in Chicago and still benefit from the ride? Just don’t get scared and get off too early at Kansas City.
Let me put it another way. If you are on the main floor and your goal is to reach the top floor, does it matter which particular step of the up escalator you get on? Do you hesitate because you didn’t get to ride up from the basement? If you want to rise to the top, you just step on the escalator regardless of what floor you’re on. Its that simple. Really.
Step 3: SELL! This is the hardest step. It’s several years from now and you’ve watched your holdings multiply in value and now you’re getting greedy. This is fun. Why get off the train now? I’ll tell you. The Pacific Ocean is why. If you stay on too long you’ll sink. When you notice the train filling up with passengers and becoming overcrowded, get off. Pay attention or you may find you’ve reached the top floor and are now on the escalator going down.
Is this a sure thing? Is there any risk? What if the train is derailed? What if the escalator malfunctions and starts going backwards? What, you expect to be able to invest with no risk? Get real.
A worldwide recession would probably lessen inflation worries. Gold, despite being the best hedge against inflation, would likely suffer. Or the Plunge Protection Team could start massive short selling. Central banks around the world might dump large quantities of their gold reserves on the world market. Maybe the U.S. government will end its deficit spending and the Fed will stop inflating the money supply and Americans will pay off their debt and start saving money. Maybe all the manufacturing jobs that left the country will return and all the illegal immigrants will go home. Maybe the administration will call an end to their forever war. Perhaps for the first time in history a fiat currency like our dollar won’t end up worthless. If you believe any of these things might come about then perhaps you should not invest in gold stocks. Otherwise, what are you waiting for?
“Progress always involves risk. You can’t steal second base and keep your foot on first.” — Frederick Wilcox