— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA
The rally in gold bullion prices is really getting amusing for two reasons.
First, we have far many more analysts saying that the run-up in gold bullion will be short-lived than those saying that gold will continue to rise in price. The naysayers never learn. I read about analysts saying that gold prices were topping out when the metal was at $500.00 an ounce, then $700.00, then again at $900.00. These analysts should take a technical analysis course entitled, “The Trend Is Your Friend.”
Our phones here at Lombardi Publishing still are not ringing with customers asking to buy gold investment newsletters. In fact, we are having a hard time selling them. As a contrarian, this tells me that the general investing public has no clue what is going on in the gold pits, or they simply do not believe that the rally in gold prices is for real.
The gold bull market is for real, alright. In fact, it has been a bull market for gold since 2002/2003. I started recommending gold-related investments to my readers back then, when gold was trading at $300.00 an ounce. We’ve been in a bull market in gold for six years and I’m convinced that the yellow metal will continue to rise.
Nothing has really changed about my opinion on why gold bullion prices would rise, it’s only been confirmed. The ever-increasing debt of the United States has been a concern of mine for years. The credit crisis of 2008 only exasperated that concern, as the government spent trillions on bailing out the economy.
Throughout history, countries that experience high debt levels have eventually seen the value of their currency erode. The United States went from being a creditor nation to a debtor nation. And that was really the turning point for America’s economic future — a slow process, but a reality.
When companies borrow more debt than they can service, they eventually file for bankruptcy. And if the U.S. government were a business, it would be bankrupt. Our government, for all its good intentions, is collecting less revenue (taxes), because the economy is soft. At the same time, it is in the uncomfortable position of soon having to borrow money just to pay the interest on its debt. That spells trouble.
The Chinese are not stupid. They see the coming crisis in the U.S. dollar (an event I have been predicting for the past five years) and they are moving their own citizens into gold bullion. China is already the world’s biggest gold producer. China also sits on over a trillion U.S. dollars, which it received for all the junk “made in China” products it has shipped to the U.S. Is it not in the best interest of China to see gold prices rise?
Don’t tell this market commentator that gold is expensive at $1,000 U.S. an ounce. Tell me that when gold reaches $3,000 an ounce.
Michael’s Personal Notes:
Monday is Columbus Day in the U.S. and Thanksgiving Day in Canada. To all my American and Canadian readers, a safe and happy holiday. I’ve convinced my kids (even though they are getting “a bit too old for this stuff”) to walk in the Columbus Day parade in Manhattan on Monday. Me? I’ll be walking, thinking about gold, walking, thinking about gold, walking…you know how it goes.
Where the Market Stands:
If you have been reading the business papers and the popular financial advisors of today, this is what you’ll walk away with: “The market rally is done; the market rally has lost steam.” I don’t buy it. Sure, we’ve had the markets go up, down and sideways over the past couple of weeks; nevertheless, Dow Jones 10,000 is well within reach. Until this market proves otherwise, I may be one of the only fools out there who’s predicting that the Dow Jones will soon cross the important 10,000 level. This morning, the Dow Jones Industrial Average sits 11% higher than where it started the year.
What He Said:
“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure — these are the bank stocks I wouldn’t own.” Michael Lombardi, in PROFIT CONFIDENTIAL, May 2, 2007. Michael was one of the first to predict the demise of banks before the credit crisis began. From May 2007 to November 2008, the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%