As gold has rapidly reached new heights, I often am asked the question, “Has Gold topped out?”
My first response is to refer to what I said in my book “Aftershock” — Gold is always at its peak and stocks are always poised to rise.
The stock cheerleaders would always have you believe that stocks are poised to move up past the next hurdle or poised to rebound, whereas gold gets questioned at every upward step it takes up.
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You would think this would have gotten a bit old since during the past decade gold has gone up every year and is now up almost 400 percent since 2000. Whereas stocks, as measured by the Dow Jones Industrial Average, are actually down 5 percent since 2000, and down almost 20 percent in inflation-adjusted terms.
Nonetheless the question always comes up when gold has a good run, as it has had lately. The reality is that gold may have peaked short-term. I don’t know for sure.
Gold certainly has gone up very fast and we could easily see a correction. However, the Fed is throwing plenty of fuel on the gold fire by constantly talking about how willing it is to print money to stimulate the economy. That issue may have run its course for now, but if we get firmer indications of bond purchases or actual bond purchases in significant amounts, that may start the fires again.
More important is the long-term outlook for gold. In looking at that I ask the question "What if environment for gold turned positive?"
Let’s face it, the environment for gold during the past decade has been pretty negative. We have had low inflation, a pretty stable dollar — no major or even minor panics — and two of the big alternative investments to gold, stocks and bonds, have done OK. They certainly haven’t seen a big long-term collapse.
But what if the environment for gold turned positive and we began to have significant inflation, or the dollar began to falter, or we actually had a big downturn in the stock or bond markets? What would happen to gold then?
Admittedly, those aren’t likely short-term events and a little bit of that is baked into the current price of gold. It may even be a couple years before we see any of that, but when it does happen, what would be the effect on the price of gold? If the price of gold can go up 400 percent in a negative environment how much would it go up in a positive environment?
Part of the reason we may not see big problems in the stock and bond markets for a while is that the Fed may purchase a lot of bonds with printed money. That alone would be enough to keep gold on at least a moderate upward path.
Trying to time the short-term outlook for gold is a tricky business and I’m not sure it’s even worth it for most investors.
What is clear to me is that, at some point, the environment is going to turn positive for gold and when that happens, watch out. Gold’s golden days will have arrived.
About the Author: Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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