Gold: The Once and Future King

April 14, 2013 9:04 am 20 comments

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One of the greatest joys of investing is going totally against the crowd and getting it right. Not only does this guarantee the biggest returns, but it shows your are thinking independently. It always surprises me that people get locked into panic mode, as is the case now with gold, mostly because by definition one overdone trend creates a trend of equal or greater force in the opposite direction. Call it the law of “shake out the weak longs so the smart money can take their positions and receive the greatest profits from the rally as they always do”. You can literally poll 1,000 people and ask them what they think about an asset. If over 90% are bearish on a trade, then close your eyes, buy, and go on vacation somewhere. It’s not quite that simple, but it sort of is.

You don’t necessarily get wiser as you age. Certain types of people with certain personality profiles will continually grow, while others stay the same because experiences are perceived differently by people. The same thing holds true for investing: certain patterns happen over and over and over again and some people just don’t learn. When real estate was the buy of the century, everyone was bearish. When stocks were poised to explode, people were bearish. And now when gold is on the verge of breaking out, people are….bearish? I’m not getting it.

I do my portfolio no favors by being biased and a “gold bug” of religious proportions. This is why I am one of the few gold bulls that said a 50% correction is possible, but no big deal, especially in the commodity space. 50% corrections are totally normal, which is now obvious to most people because of what’s happening with stocks. Just take this lesson and apply it to gold, it’s really that simple. There is a time and place for everything, and gold’s time is coming. Gold will literally be a double in the same way real estate in select pockets of the U.S. was in recent years. Again, no big deal- this is just how assets move.

The only thing that has me hesitating is the dollar, which probably will rally to the moon. The short dollar trade has become crowded to the extent that a rally is pretty mandatory right now. Every investment needs to be viewed with a balanced outlook, which is why I was personally buying real estate and not gold for the past 2 years. Now things are shifting, but I’m not too sure people recognize it. It is still a little early (although a short-lived countertrend rally is likely), but I will probably be giving my obligatory “buy gold it’s the bottom” speech soon. Maybe it will be at $1400, or maybe $1200, but gold is most certainly due for a “nobody saw this coming!” rally, just like the good old days.

More on this topic (What's this?) Read more on Gold, King at Wikinvest
  • moark

    Fed and its allied banks are manipulating Gold to prop up its worthless money, they have been selling paper gold. Otherwise it will lose control over inflation, interest rates then bond market collapse will follow.

    Moreover I do not think Fed has any physical gold in its reserve. Does anyone see any picture or was any picture released ?

    Manipulating gold is easier than doing it on oil. So Oil price is more steady than gold.

  • moark

    Goldman Sachs is the big manipulator on gold.

  • moark

    Gold dipped at 1320 $. Now target is 2200$.

  • moark

    Gold is dipped at 1320 $. Now target is 2200$.

  • moark

    Gold is dipped at 1320$. Now target is 2200$.

  • moark

    First Gold price will increase to 1550$ then from 1550 $ it will decrease till 1480$ then increases again final target is 2200$.

  • npp

    Hi Moses
    Thanks for the interesting article on mass psychology.It’s worrying that the “masses” can be wrong all the time. I have a few questions for you to consider -
    - who are the masses? Most people don’t earn enough to gamble long or short on the stock market. The media refers to the “retail traders” but most people are not trading stocks everyday.
    - how do you form your macro views? I’m curious on your background in economics, trading and finance. Did you study any of them in university? Or are you coming to this area as an outsider. (I didn’t study economics btw). I’m not saying that have to study economics to have a correct view on that subject -I’m just interested in the background out of curiosity – i.e. was it conventional or unconventional…

    my own take on gold is that it will go lower first but will then spring back.

    thanks

    • http://www.expectedreturnsblog.com Moses

      Hi Npp,

      I agree that most people don’t trade, but a significant minority do, and their psychology moves markets. For example, something as simple as loading up on a 401k when the market is rising.

      There are many categories of “masses” imo. Sometimes I talk to people I know in the investment industry just to see what the prevailing groupthink is. I consider them to be “the masses” and they just as clueless in most cases.

      I don’t have a background in economics except basic courses that had no real-life application. Just self taught, but was always read on a wide range of subjects since I was young, and I have found it has helped me think unconventionally.

      I agree on your take on gold.

      Moses

  • http://twitter.com/karenmorris40 karenmorris

    The people who I recommend listening to regarding gold and silver are: Weiss at Money and Markets and JIm Rogers. I have been following what has been going on with gold and silver price manipulations and the two people I mentioned above seemed to have predicted the prices correctly and the drops. They both believe that in the future gold and silver prices will move much higher. As for now, they say don’t be surprised if the price drops over the next month. But get in when you can b/c the dollar is being devalued. (source: http://gmbullion.com/ )

  • Anonymous

    According to this: http://www.wealthprotecting.com/gold-price/ – its gold still good investment choice? I know, its good to buy when price is going low, but is possible that price will go up to new maximum in few months/years?

  • light

    Hi Moses, your prediction for gold is not coming true, do you have any update ?

  • light

    Hi Moses, You should excuse for all your wrong comments and prediction about gold. Your gold prediction affected readers and caused them to lose their wealth. You said that gold would skyrocket but see the current price !!! May be you were speculator who knows.

  • light

    Show me buzz picture, gold is skyrocketing but to the wrong direction south, Moss, I think you do not know anything about gold and economics.

  • Joe

    Are you buying gold all the way down to $800? Or will they pry the gold from your cold dead hands at $100/oz… you gold bugs are somethin else…

  • Ratzfinger

    Hi Moses, could you comment on current gold movement. What will happen next? Thanks.

  • john

    It is once King and future King ? Are you sure or kidding !!!

  • John

    haaaaa look at the KING :) may be moses you are the King not Gold.

  • John

    Please show us where is the KING ?

  • Joe

    Oh MOSES!… Come out, come out, wherever you are….

  • norma fay

    You make some excellent points. This is why I chose to invest in a Gold
    IRA
    . I think it is the best option and provides a retirement fund that will honestly allow me to retire. While it is a great investment, it is
    important to get fair prices. Personally, I use APMEX. I have found them to be reliable, as well as easy to use.

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