If You’re Worried About Your Gold Stocks, This Will Make You Feel Better

Boy, they just don’t like gold bullion. The gold bears are getting excited over every negative movement in gold prices. As soon as the precious metal’s prices decline a little, we start to hear chants, like “Gold bullion is useless.” Sadly, most of the market is too focused on the short term—the daily, weekly, or even monthly fluctuations—which is wrong.

I keep my eye on the long-term picture.

Before going into any details, please look at the chart below of gold bullion prices since 1970.

Gold-Spot Price ChartChart courtesy of www.StockCharts.com

Looking at this chart, an observation one can make is that gold prices are known to have price swings, meaning they go up significantly and then come back down.

From 1970 to 1974, gold bullion prices increased by more than 440%; then in November of 1974, they started their decline. The precious metal’s prices found a bottom in 1976, and in that period, prices dropped more than 45%. (Source: “Past Data,” StockCharts.com, last accessed September 24, 2013.)

Moving forward, in August of 1976, we saw the beginning of another bull run in gold prices. This rise continued on until the beginning of 1980. In this period, the precious metal’s prices increased by more than 705%. From there, until June of 1982, gold bullion prices declined more than 63%.

From then on, the price of gold moved sideways for a while, but there were heavy fluctuations in between.

Then came 2001, when the precious metal found a bottom and started to go higher, increasing 291% until March of 2008. After this time, we saw a decline of almost 30% in a very short period.

Following this, another bull run was born. From then on, gold bullion prices increased about 170% until 2011, when the price hit $1,900 an ounce.

Since then, we have seen scrutiny. Gold prices made a low at around $1,200 an ounce—or a decline of about 35%—not too long ago.

Dear reader, the moral of the story is that the fluctuation we have seen in gold bullion prices is nothing new. My opinion? When the bears say gold bullion prices are in a “bubble,” they shouldn’t be trusted. We have seen all this in the past. The gold bears were wrong then; they are going to have the same fate again.

I continue to be bullish on gold bullion for the following reasons:

Central banks are still printing paper money, as their economies are still in trouble. They are fixated on printing to bring down the value of their currencies. But gold bullion is a global currency. To give you some idea about their sentiment, the president of Switzerland’s central bank, Thomas Jordan, said, “At the moment there’s no reason to discuss an exit of the cap—the minimum exchange rate is still very, very important.” (Source: “SNB Says Franc Ceiling ‘Essential’ to Protect Economy,” Bloomberg, September 19, 2013.) In other words, the central bank plans to keep printing its own currency. Eventually, all this paper money printing (with nothing backing the paper) will catch up with world central banks in a bad way.

Meanwhile, demand for gold bullion worldwide is increasing. The longer gold bullion prices remain stressed, the bigger the eventual impact on the supply side.

What He Said:

“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE). Interest rates in Canada remain very low and they are not expected to rise any time soon. Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX. Most brokers in the U.S. can buy stock on this exchange.” Michael Lombardi in Profit Confidential, February 8, 2007. The TSX was one of the top-performing stock markets in 2007, up nearly 20% for the year.