In my opinion, one of the biggest mistakes a precious metals investor can make is to use gold stocks as a substitutes for gold bullion. Gold stocks are great to own, but they are not the same thing as the real thing. In a food shortage do you want Kellogg’s stock or do you want boxes of Frosted Flakes?
Gold stocks are financial assets that have claims on gold bullion, while gold bullion is a real asset that is not a liability on anyone else’s balance sheet. In deflationary 2008, gold bullion was up nearly 6%, not to mention the double-digit premiums we saw on bullion coins and bars, that were nearly impossible to get. While at the same time the XAU, the gold and silver Index, was down with the rest of the stock market- a large 28%.
Since our central bank has embarked on quantitative easing, otherwise known as printing of dollars, I expect more dollars to chase a finite supply of gold for some time to come. This will happen even in a deflationary environment, caused by tight credit conditions and banks reluctant to lend.
This alone is likely to put upward pressure on gold prices and especially premiums on a tight supply of physical product. The Deflationists always argue that gold is overpriced. We have heard the Elliot Wave theorists say that all the whole way up. At what point will they just accept the fact that gold is not overpriced at all?
So far we have seen a 10-year move in gold that has resulted in a 400% increase in prices. That is because gold is being accumulated by people who are concerned about the global indebtedness and about the inflationary impacts of a world banking and monetary system gone mad. With all due respect Mr. Prechter, gold would not be where it is today, up some 400% in the last decade, if there was no inflation. In the last few weeks, gold has made all time highs not only in dollars but also in the Euro and the Swiss Franc. You must look at assets the way others in the world look at them, to understand the big picture.
The big picture is-big money, worldwide accumulating gold. Stop fighting the primary trend and become part of the big picture and get longer gold.