By MoneyMorning.com.au
For years your editor – and our colleagues – has written things like, “Well, you’ll know it’s a bubble and the time to sell gold when [blank] happens.”
Some of those “blanks” have included, when Michael Pascoe says gold will go higher… or when mainstream bankers are bullish on gold… or when the mainstream press prints a “Gold Special Issue” edition of a newspaper.
Of course, we’ve made those throw-away lines to make a point. The point being that gold wasn’t in a price bubble, and that it would only go higher.
But, what do we do when the warning signs appear? Not just one, but all three.
And how can we justifiably explain that despite the warning signs, we’re still bullish on gold? And that we advise you to ignore the bubble warning signs.
In a moment we’ll explain all. But first you have to ask why gold has already gone up so much.
The main reason is the influence of meddlers in the market. The kind of lunatic who thinks they can control every aspect of the economy. U.S. comedian, Larry Miller explains what goes through the minds of these people:
“To me the real lunatics of the world are anyone who wakes up in the morning, looks in the mirror and thinks, ‘Maybe I’ll lead. Yes, that’s it I’ll be a leader and then everyone will follow me because I’ll be leading. And I’ll run for office and people will vote for me so I can get off a plane and nod gravely when people ask questions.’ To me this is a serious maniac, this is a real maniac…”
Last night and this morning, markets rallied on news of lunatics planning to inflict more meddling on the markets:
“French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are ‘convinced’ Greece will stay in the euro area as they faced international calls to step up efforts in fighting the region’s debt crisis.”
We always enjoy the imagery of someone “fighting” a debt crisis.
But how will they fight debt?
Another maniacal leader has the answer. This time it’s European Commission President, Jose Barroso:
“The commission will soon present options for the introduction of euro bonds. Some of these options could be implemented within the terms of the current treaty; others would require a treaty change.”
In other words, “we need to change the rules, otherwise what we’re about to do is illegal.”
What they’re about to do is steal from European taxpayers… again.
But today’s letter to you isn’t about the political madhouse. Rather it’s about the impact it has on what we believe should be your most important investment – gold.
Earlier we mentioned the three warning signs that have appeared. Each one is a sign we’ve said should indicate the top of the gold market… For short we’ve called it Pascoe, Oliver and Pull-out (or POP!):
Warning Sign 1: last week Michael Pascoe wrote in his Yahoo! 7 Finance column:
“Once financial markets sense that financial disaster has been averted, the gold price could fall even more quickly than it has risen. Before then, the peak might be $2000 or $3000 or whatever, but it’s still a bubble.”
OK. It’s not advice to buy gold. But it is an admission that gold could go higher.
Warning Sign 2: this from AMP Capital chief economist, Dr. Shane Oliver:
“Gold is likely to remain a key beneficiary (from US-dollar weakness); with US$2000 an ounce set to be breached soon and much higher levels likely over time.”
Warning Sign 3: two weeks ago, on 31 August the Australian Financial Review printed a four-page special report with the headline, “Theories abound on peak gold price”.
A quarter-page ad headlined, “HOW TO BUY GOLD BULLION”.
Inside, another headline cheered, “Silver remains a valuable treasure for investors”.
All that taken together… by our own rules… that should at least hint at a gold bubble. Right?
No. (Incidentally, you could also see our rejection of our own gold bubble alert rules as a sign the gold price is in a bubble!)
If anything, the fundamentals for gold are stronger today than they were two years ago – hence the rising gold price.
But we will agree the gold price could fall in the short term… especially if the market foolishly believes the political maniacs can win the “fight” against debt.
But that’s the thing. As Pascoe says, “Once financial markets sense that financial disaster has been averted…”
Financial disaster can’t and won’t be averted. Only ever delayed.
The reality is they can’t win the fight… not when they’re fighting against themselves. It’s like saying you can win a boxing match by knocking out your shadow!
Besides, the bullish calls on gold by Pascoe and Dr. Oliver aren’t really bullish… and neither was the AFR special pull-out (it’s just a way to raise advertising revenue from gold companies).
The fact is the mainstream doesn’t really understand why gold is going up. They compare it to the Tulip bubble without realising the idiocy of their argument.
Gold isn’t going up as the result of a speculative bubble. It’s not a self-fulfilling spiral – the old gold-is-going-up-because-it’s-going-up argument. Gold is rising because investors are starting to get the vital reason for buying and holding gold…
That it has been a genuine store of value for thousands of years, and it will continue to be. Savvy investors know the only way governments can “win” (or rather admit defeat) the debt fight is to allow central banks to print away the debt.
The trouble is, even if they succeed, it won’t be the end of it.
Because the cause of the debt problem will remain. That is, loony politicians and bureaucrats who wake up in the morning and think, “I’ll be a leader and then everyone will follow me because I’ll be leading.”
As far as we’re concerned, as long as the lunatics are in charge gold remains a buy and always will.
Cheers.
Kris
P.S. Slipstream Trader Murray Dawes feels the ASX may be on the verge of a squeeze. In his new free video market update, Murray will take you through what’s happened in our market recently and where he thinks it will head. To view the video, simply click here to visit Slipstream Trader YouTube channel.