As some of you probably already know, there are a multitude of
reasons why I believe the broader stock markets are about to meet a
financial Freddy Krueger.
I won't repeat myself here, other than to say that we are fast
approaching the point at which the U.S. government will have to
choose between crushing hocked-to-their-eyeballs American consumers
by continuing to increase interest rates (a rock) in order to keep
the dollar attractive to the foreigners who lend U.S. markets about
$2 billion per day... or letting the dollar tank (a hard place),
triggering all sorts of fiscal unpleasantness.
Rarely is predicting the future anything more than a self-conceit or
a ready topic for cocktail chatter; there are simply too many
variables to allow for accurately predicting anything more complex
than what time your alarm clock will go off in the morning.
Even so, predicting the coming financial crisis is a relatively
straightforward affair, made so by the fact that it is now
unavoidable. The only question is how bad it will get. And it could
get extremely bad... especially when you throw in some of the other
wild cards-which these days could be anything from a serious spike
in energy prices... an upwards revaluation of the Chinese
renminbi... or another major terrorist attack.
Given that less than rosy view, it is no wonder that I am so bullish
on gold and silver... and especially the high-quality gold and
silver stocks we follow in the
International Speculator, which offer
the best leverage. In the last, discovery-led, gold share bull
market in the 1990's, even run-of-the-mill gold stocks went up by
1,000%, 2,000%, 5,000%--all while gold prices stayed flat.
This time around, gold is running up concurrently with a still
emerging string of mining discoveries, so the returns on quality
gold stocks should be even better. Already, we are regularly pulling
down doubles and triples-but the best is still ahead.
Or is it? After all, gold stocks are stocks, and so it's logical
that they would get dragged down when the general stock market
Let's put that notion to the test.
At closer inspection, the idea doesn't hold up. Reviewing a chart
showing gold stocks versus the broader market
(click here), you'll
see that gold stocks largely march to their own drummer, sometimes
in the same direction as the broader stock market, but sometimes
distinctly contrary to same. Yet it is true that the strongest moves
in gold stocks have occurred when the general market, as well as
gold, was moving up (1971-73, 1983-1983, 1985-1987, 1993-1996).
One notable factor is how much more volatile the gold stocks
are-which is good if you are willing to accept the higher level of
risk in exchange for higher potential return. It is also a good
reminder that these things are not heirlooms, but more akin to
burning matches; when you get a big profit, be sure to sell at least
enough to get your original investment off the table.
The other thing to note, which is especially relevant to the topic
of this article, is the price action of gold stocks during the
dot-com bubble and the following collapse in the period 1995 to 2000.
At the time, of course, no one wanted to hear about something as
archaic as precious metals, the ultimate tangible. Instead,
intangibles were all the rage, though even that seems too tame a
word. Precious metals stocks went down, down, down as the dotcoms
went up, up, up. But then, when the cyber-bubble burst, gold stocks
started their rise.
While the broader stock market has since recovered, it is a recovery
built on a fantasy of easy money and debt. When that fantasy ends,
it will be gold and silver stocks that are left standing.
If you haven't yet built your portfolio of precious metals stocks,
don't put it off. Something brutal this way comes. It will either
run you over or make you rich.
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