Investor Points of Few – Buying Gold In Times of Trouble?

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By Alan Steel

Back in September 2011, I invoked The Beatles and wrote in an  article called Gold, Let It Be that, “It’s only a week or so ago the talking heads and the dead tree press were telling us Gold was on an upward course unchecked to $2500 to $3000 an ounce. Then from $1950 or so it starts falling, heading rapidly instead to $1600.”

And it was my suggestion at the time that “Gold has certainly been showing signs of bubble territory” and that “recession will be avoided and trade and capital spending increases are signs it’s time to stock up on an undervalued asset class: Equities.”

Instead, private investors opted to dump their stock market investments and buy Gold, in a run to perceived safety. That’s because the celebrity analysts and expert commentators at the time were telling folks to expect a Eurozone economic tsunami – apparently that region’s financial stability was, well, unstable.

(…so much for speaking of words of wisdom…)

That was six years ago. Guess folks are still waiting on those high winds to arrive.

At that time, about 4,000 Dow Jones points below where we are today, we said Gold had reached the apex of its precious metal supercycle and would be headed down for a while.

It made sense. If the Eurozone had been in such danger, Gold would have been rising faster than Trump’s comb-over in a squall.

Here we are now in Q2 2017 and Chart of the Day provides us with a bit more perspective on the long-held notion that there’s some kind of safety in El Oro (pays no dividends, folks) any time the shit hits the fan.

But things just aren’t that simple or directly correlated (…in times of trouble…).

Chart of the Day writes:

“Today’s chart provides some long-term perspective on this millennium’s gold market…the pace of the bull market in Gold that began back in 2001 increased over time. In 2011, however, the parabolic trend in gold prices came to an end and a new downtrend began. So far this year, gold has rallied and is once again testing resistance of its five-year downtrend channel.”

Chart of the Day

But it’s not all butterflies and roses in equities now either. The market, by many people’s reckonings, is expensive. That’s not to say that there isn’t value out there. There is. In fact, we’ve seen returns on some investments at upwards of 40% over the last twelve months.

Ned Davis Research, however, one of the few organisations in the world who saw and wrote about the 2008/09 crisis in advance, is saying that “warning signs are accumulating, but the majority of indicators are not at levels seen at bull market peaks.”

That doesn’t mean it’s time to panic. Corrections are a necessary and expected part of the long-term investment process. In fact, that’s when expensive markets tend to get a lot cheaper in a hurry, and cash reserves can be used to buy that new found value from those who panicked and left it for you at a discount.

In simplest terms, the stock market operates as legendary investor Benjamin Graham said it does: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

And a good adviser is someone with a decades of investment success who keeps you focused during short-term periods of panic on your long-term goals.

You owe yourself that type of coaching.

Because after all, it’s your money.

Alan Steel, Chairman, Alan Steel Asset Management

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