— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA
Don’t listen to them.
I’m talking about the news reports coming out telling us that gold bullion prices are rising sharply because the U.S. dollar is declining in value. Yes, at one time, early in the gold bull market, the U.S. dollar’s value decline was the main catalyst of the gold bullion price rise.
But, today, the price of gold is rising because of real buying. Investors and consumers are buying the yellow metal and that is sending gold’s price higher.
Gold bugs like me often refer to kitco.com for up-to-date information on gold and gold price charts. Kitco has recently introduced an innovative feature on their web site where they actually claim to track how much of the change in the price of gold is related to a change in the value of the U.S. dollar and how much of the change in price is related to the real buying of the metal.
For example, yesterday gold was up $17.00 per ounce at one point. On the Kitco site, it showed just $0.10 of the change in the price of gold related to a change in the price of the U.S. dollar — the balance of the change in price in gold bullion was related to the real buying of gold.
Gold bullion is now entering the long-awaited Phase Three of its bull market cycle. During Phase Three, investors (large and small) and consumers become aware of the bull market and start buying. At this point, we are at the very early stages of Phase Three of the bull market. Hopefully, the majority of my readers are entering this final phase of the gold bull market story “loaded” on gold-related investments.
Phase Three tends to be the lengthiest part of the bull market’s life. And it usually ends with a speculative blow-off — something we are very far from right now with gold. I would not be surprised to see Phase Three of the current gold bull market take gold prices to two-to-three times their current level.
Michael’s Personal Notes:
Australia central bank raised interest rates again this week, the third consecutive rate hike in a row for the country. The key bank rate in Australia is now 3.75%, a big difference from the Federal Funds Rate in the U.S. today of zero.
I have to give credit to people running the central bank in Australia. They have the guts to raise interest rates now, in spite of domestic consumer criticism, to fend off potential bubbles and inflation. The Bank of Canada should be doing the same thing. Interest rates that are low in Canada are causing a boom in housing prices not seen in years and it will all end up very badly, unless some monetary tightening, like we are seeing in Australia, starts to happen.
Where the Market Stands:
I continue to be surprised at how many investors I talk to who are so surprised the stock market continues to rise. I’ve heard every reason in the book as to why stocks should be falling, not rising. But very few people are talking about why the market is rising. So, what does the market do? It continues to climb the proverbial “wall of worry.” Many readers e-mailed to tell me I was off my rocker when I predicted months ago that the Dow Jones Industrial Average would cut through 10,000. Imagine the e-mails I’m receiving now, as I’m looking for 11,000 on the Dow Jones.
What He Said:
“The conversation at parties is no longer about the stock market; it’s about real estate.’ Our home has gone up this much or our country home has doubled in price.’ Looking around today, it would be very difficult to find people who believe that one day it could be out of vogue to own real estate because properties would be such a bad investment. Those investors who believe a dark day will never come for the property market are just fooling themselves.” Michael Lombardi in PROFIT CONFIDENTIAL, June 6, 2005. 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.