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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 09/01/2008 : 14:27:42
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Casey Files:
What I Tell Myself When Gold Sells Off
Psychologists say decisions aren't made simply on what you hear from others but also on what you hear in your own inner dialog. With investing, that can be the kiss of death if you let either fear or euphoria dominate the 'conversation.'
So what did you tell yourself this summer when gold plummeted 20% in 5 weeks and most gold stocks lost a third or more of their value? Did the dialog help you make a wise decision?
I'll tell you what I told myself. When I saw a chart of gold's mid-summer drop, it looked scary...
...then I told myself to take a longer look at gold's history.
What I saw is that gold's recent drop is a blip in the big picture. So I told myself, "Maybe you should relax a little."
Then I thought about corrections in past gold bull markets. Compared to the historical record, does the recent sell-off look normal? Or is there something about it that suggests our gold bull market is over? Here's what I found: past bull markets were interrupted by similar drops - and then they came roaring back.
And even within the current bull market, there have been other pullbacks similar to what we've just gone through. Gold dropped 21% in the summer of 2006 - but gained 45% by the end of 2007.
So I told myself, "Corrections, including large ones, are normal in bull markets. The sweet stuff is still ahead."
But enough of charts. What we really want to know is, is the case for gold still intact, or have the fundamentals changed? And the answer, I believe, will give you some compelling things to say if the recent correction has left you arguing with yourself about buying gold.
Think back to mid-July, when gold was pushing higher and was again within spitting distance of $1,000. How did you feel? Were you optimistic? Excited? Of course, and so was I. But what did that optimism have to do with the reasons for gold's rise? Nothing! You were happy and tingling because gold was moving your way - yet it was rising because inflation was climbing, the dollar had a long-term illness, the government was printing money, banks were failing, falling house prices were threatening the solvency of more lenders, long-term oil supply was dwindling, and the economy was faltering.
Don't wait for me to ask. Ask yourself: which of those factors have changed in the last 30 days?
If the bull market in gold were over, it would mean that inflation was under control, the dollar's long-term problems had been solved, the government had become restrained in printing new money, banks were healthy, house prices had stabilized, a surprising new source of energy had been discovered, unemployment was diminishing, and everyone was smiling. That's not what I see.
So what do I tell myself? "Every fundamental reason that gold is sought as a safe haven is still growing in importance."
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The author if this work left out a few details worth remembering-
The US Fed has not spiked interest rates to bring inflation under control.
Foreign governments have not publicly made statements they will support the dollar’s strength like they did in the 1990’s
There isn’t a war on gold to punish certain gold producers (the evil empire A.K.A. The Soviet Union or South Africa because of its Apartied policies.)
I won’t say it’s different this time since gold and silver, like all investments, have their ups and downs.
Keep an exit strategy on hand-buy when the fools are selling
Sell when the fools are buying
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