Why I Bought More Gold-related Investments Yesterday

The action in the gold bullion market was rocky yesterday. Here’s what my esteemed colleague Robert Appel, BA, BBL, LLB, has to say about gold:

“Yesterday, the $1,630-per-ounce pivot in gold bullion was broken to the downside. This coincides with massive problems in Europe and strength in the greenback. As a result, we expect the gold bullion complex to work even lower before finding solid support.

“By no coincidence, the ‘gold bashers’ have brought new talent to their CNBC road show, a spectacle in which they explain what a terrible investment gold bullion is!

“First Warren Buffett, now Bill Gates. This is in spite of the fact that, over the last 10 years, the price of gold bullion has outperformed both Berkshire Hathaway and Microsoft both! What is going on? On one level, clearly the chaos out of Europe is, indeed, chaos. As we have reported, the European Union, that ‘grand design’ from the ‘one-worlders,’ was a disaster.

“Welding together the economies, the habits, the social structures, and the currencies, of two cultures as far apart as Greece and Germany, for example, made no sense then—and makes no sense now.

“And the one thing all, repeat ALL, Western nations agree on is that they don’t need strong gold bullion right now to tempt buyers away from paper currencies, which are already in a death spiral, hence the massive selling at the paper level. (Note that we said ‘paper level’—as Eric Sprott, one of the largest players in the realm of physical gold bullion recently reported, there is an actual shortage of hard bullion at these prices for those who want delivery of the asset instead of the script).

“But, as with anything, you have to be careful what you wish for. A strong U.S. dollar will choke the already-fragile U.S. recovery to death, something that the boys on the Hill don’t want or need in an election year.

“So, amid the chaos, amid the confusion, our view is that the party is not over until it’s over. By the end of the summer, or early fall at the latest, we expect a spectacular recovery in the gold bullion complex. And we also expect the metal to return to the $1,630-per-ounce pivot sooner rather than later.”

Personally, I like to buy when the majority of investors are selling and sell when the majority of investors are buying. It is in that vein that I bought more gold-related investments yesterday. (Also see: Is the Bull Market in Gold Over?)

Where the Market Stands; Where it’s Headed:

It could have been much worse for the stock market yesterday. After all, most major European countries are back in recession. China’s economy is slowing. Japan is back at it…printing money again. And here in America we have a situation where jobs are not being creating and the central bank is buying government debt.

All this happening while the Dow Jones Industrial Average trades at 13,000…that’s 15 times our estimated earnings for stocks that trade in the index. Fifteen times earnings is a good number when earnings are growing…but not when corporate profits are stagnant, as they are today.

Since March 2009, I have been saying that we are in a bear market rally. My opinion remains unchanged. The rally has been extended by artificially low short-term interest rates, out-of-control government debt and money printing…events that cannot go on indefinitely.

The stock market is putting in a huge top here at which point the bear market rally will retire. (Also see: Proof Stock Market Rally’s Just an Old-fashioned Bear Trap.)

What He Said:

“The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-home-builder stocks is telling the true story—these stocks are falling in price daily (and the media is not picking it up). Those who will hurt most when the air is finally let out of the housing market balloon will be those buyers who bought in late 2005. In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999.” Michael Lombardi in PROFIT CONFIDENTIAL, March 1, 2006. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.