21st Century Gold Rush - Up Date ( I Told you so )

Back in the late 1970's, the lineups to buy gold looked more like lineups of people waiting to buy Stanley Cup Hockey tickets at the then Famous Montreal Forum. There they stood all wrapped up in their Parkas, ski jackets, and bulky sweaters wearing anything from construction boots to overshoes; there was even a sprinkling of executives in their Patten leather shoes, business suits and cashmere coats, all waiting to get in on a sure thing.

The analysts and economists cited a litany of reasons to explain the new gold rush but nobody cared. Gold prices were said to have become a barometer of political and economic fears but in the end it was just pure GREED that drove the price until it finally peaked in January 1980 at $875 an ounce, almost on the very day that Americans were finally allowed to buy and own gold; the day that the big surge of American buying was to drive gold to $5,000. Yet another example of 'The Obvious is Obviously Wrong" the supposed mad rush of Americans lining up to buy gold was already discounted in the price. Tell me something that everybody doesn't already know, that's when I'll have something of value. The only important factor was simply that prices were skyrocketing. Anybody who was already in was making money (of course not as much as they claimed) and everyone else was afraid of being left out in the cold.

Gold was selling for $250 when 1979 began. Later, amazed at the sudden surge above $700, gold devotees began talking a $1,000 plus, some were even trying to justify $5000 or even $10,000. The rocketing prices even startled the experts and frighten the analysts who had forecast a precious metals boom but not anything like this. For the first four years of this Bull Market the newspapers and magazines had ignored Gold; just as they are doing today. Then suddenly, in late 1979, front page newspaper headlines, reports and articles on gold and silver were all over the front pages of not only financial newspapers but magazines as well. Articles such as; "Industrial users worried about gold prices," "Silver soars even faster than gold", "Canadian traders say silver's popular", "Gold stocks look even better," "Ottawa won't announce timing of gold sale," were everywhere. Although we are probably years away from any newspaper articles of this sort, Rest assured that before this bull market in precious metals is over there will be similar front page stories around the world and Cramer will be yelling boohyah boohyah at every one of the gold stocks that will then permeate his program.

IS IT TOO LATE TO GET IN?

If your worried that it's too late, that you missed the move; just ask yourself how much space is being devoted to the fact that gold just broke out to new 25 year highs. Today as back then, most analysts and the Media are completely ignoring gold, it's only us so called gold bugs that continue to believe in this bull market. Well I'm not a Gold Bug, I'm a realist and an economists that studies the past as well as human nature. Right now you would be lucky if you can even find a quote for gold let alone any booya's for gold or gold stocks.

The last gold rush lasted eight years (1972 to 1980) This one started in 2001 and so we should have at least two to three years left to run. |BUT remember that most commodity bull markets have their most explosive and most dynamic run in their fifth and last stage.

I have gone back in time to the 1970's and focused on gold and silver stocks just to give you an idea of what they will perform like in the next 2 - 3 years, and to see what happened back then when gold first hit $500 then $600 then $700 and finally $850. The first Library that I went to had the Financial Post newspapers on microfilm all the way back to 1972, the very beginning of the last gold and silver Bull market.

There were very few if any articles when gold moved from $35 in1972 to $200 by 1976, and hardly anybody noticed when Gold dropped back down to $100 in late 1976.

Stories on gold and silver didn't even begin to get published until late 1978 early 79 and they didn't hit the front page until late December 1979 into January of 1980, the eventual final blow off top.

The stock tables that I found, brought back some fond and not so fond memories, were absolutely amazingK In 1975 most gold and silver stocks were trading under $2 and a lot were penny stocks trading under $0.25.

Even with gold up 600% from the 1971 low of $35 to the 1975 top of $200 most gold and silver shares did little to make anyone except perennial gold and penny stock traders wake up and take notice. Remember that we were in a severe Bear Market throughout most of 1973-1974 and make sure you keep that fact in mind when this general market sells off in the very near future. I worked for Dominic & Dominic at the time and the President was one of the worlds Biggest Gold Bulls who became famous for going to Japan and turning them on to Gold. I held a few seminars in an attempt to push Gold as the best way to make money in a falling market but getting an order was like pulling teeth. It was not until gold retraced its first big sell-off and got back above $200 did the gold and silver stocks started there historic bull market runs that would end at un-imaginable prices.

Some examples were: Lion Mines - 1975 price $0.07 / 1980 price $380 YES that's right it's not a misprint you could of bought 10,000 shares of lion mines in 1975 for around $700 dollars and if you held on for the whole 5 years until January 1980 you could have netted a total profit of around $3,799,300. Not bad hey!!!!! A few others were Bankeno - 1975 price $1.25 / 1980 price $430. Wharf Resources - 1975 price $0.40 / 1980 price $560. Steep Rock - 1975 price $.93 / 1980 price $440, Mineral Resources - 1975 price $.60 / 1980 price $415 . Azure Resources - 1975 price $0.05 / 1980 price $109. The majors also performed superbly well but nothing when compared to the juniors. WARNING. The juniors although offering great potential, there is also much greater risk, as most of them ended up falling back to zero. So be careful.

No question about it, that was one of the biggest financial opportunities in history. I don't know of any other time, not even the dot.com bubble (how may of us could get in on the IPO's anyway) where in only a 3 year time span you could have turned so little money into so much wealth. "You only need to make one good investment decisions in your whole life to be super successful".

I believe we are now at that same juncture as we were in 1976-78 but only this time the fundamentals are even better for gold and silver than they were back then. The similarities between the 1970s and today are uncanny. See if you can find a copy of James Dines prophetic classic "The Invisible Crash" known then as the "Gold Bugs Bible. The things that Mr. Dines wrote about back then could have easily been written last week or talked about on FOX yesterday. Here are a few quotes: A full-fledged panic away from paper money could start at any moment". Or how about this nice quote. "When people see gold and silver standing alone amidst the economic ruins, they will realize that we gloom and doomers were actually right". "Too much paper has been printed in the past, and will have to be wiped out no matter what." "People say gold is useless. Not true. It is demonstrating its function right now for all to see. Gold is the ballast for the monetary printing presses and gold will relentlessly punish all offenders" The list of timeless quotes goes on but I will leave you with one last quote, that is very relevant to today's problems in the U.S dollar and the so called economic rebound. "It beginning to dawn on some people that to defend the dollar and avert a dollar crisis, U.S interest rates will have to go up; However, if interest rates go up sharply it will choke off not only our economy but will surly burst the Real Estate Bubble as well.!" These quotes tell the real story of why gold (and silver) were so important throughout history.

History Repeats; but never in an identical fashion so that it is not recognizable until only long after the fact. These quotes are the real fundamental cornerstone of why gold is in a bull market today and why the current rally in the general equity markets is only a bear market rally based on near record low interest rates, (that can't last), several tax cuts and the FED flooding the world with fiat dollars!

Now that the Fed is being forced to raises interest rates, to save the dollar and stop inflation from becoming a problem among other reasons; the stock markets, bond markets, housing markets and credit markets and finally the oil market will, shortly begin to implode once their respective breaking point are reached. (you are about to witness Supply & Demand at work) For your own information I recommend you also read "The Dollar Crisis" By Richard Duncan. "Balance of payments deficits of an unprecedented magnitude have resulted in credit induced economic over heating on a global scale. The foundations for sustainable economic growth will not be restored until this flaw is corrected and the U.S. trade deficit ceases to flood the world with liquidity. For the last fourteen months, Greenspan has been attempting to create a soft landing by slowly raising rates before he is forced to. So along with raising rates Greenspan is also pursuing a policy of easy money, hence his Conundrum. Greenspan has painted the FED and the world into a corner that I believe his successor Berenanke will not be able to get us out of without a lot of pain and suffering.

Investing in gold and silver shares and the physical metal now and holding them for the next 3-5 years could be the only major financial decision you may ever have to make in your entire life.

Do NOT trade in and out. Just buy some stocks now, add to you positions on any short term sell-offs and wait until you see headlines in the newspapers similar to the one that I opened this essay with. Or if you have not yet taken a position, then scale into any precious metals mutual fund. Remember, when that front page story which ran in January 1980, most gold and silver stocks were trading over $50 per share and lots were trading over $100 -$200 some even as high as $500 per share when only a few years earlier you could have bought the same stocks quietly between $1 to $5. I know it's hard for most of you to believe that gold and silver will surpass their old January 1980 highs but that is what a 20+ year generational bear market will do to a whole generation of investors, who have grown up with falling real assets (gold, silver and commodities) and rising paper assets (stocks and bonds). When the tide of human emotion swings and paper assets really start to fall hard, the lust and fervor for real assets will be unbelievable. Gold will have to go to $2,000 just to get back to its previous high in real dollar terms. The dot com bubble will look like small potatoes compared to some of the up coming gains in the first gold and silver bull market of the 21st century. But unlike the dot com bubble that was based on easy financing, unrealistic dreams of profits, aggressive accounting and pure greed, the coming explosion in gold and silver stocks will be all about supply and demand and an object FEAR to protect one's savings from the paper destruction combined with GREED to get in on a sure thing. There is nothing that can stand in the way of a combination of GREED and FEAR.

TOTAL EQUITY OF ALL GOLD STOCKS

When the entire world wants a piece of the gold and silver bull market they will discover that there is only a relatively very limited supply of shares, and you can't create a gold mine out of thin air like you could a Dot com company The combined total of all gold stocks is less than that of the equity of EXXON. Yet it is estimated that there is over $2 Trillion in hedge Funds alone. Can you imagine what happens if suddenly they wake up and begin a rush to Gold. There are over 8000 mutual funds that have not even looked at gold and yet they have a mandate to be fully invested. What do you think they will do when the only stocks going up are gold and silver stocks? (maybe Uranium, Platinum and Palladium as well)

The gold and silver stock sector is very small compared to the bond and stock markets and it won't take much buying, percentage wise, to push these stocks into the stratosphere. I am sure that most of you have friends that can't name even one Gold stock; But I'm also sure that in 2 - 3 years they will be touting you about the latest hot gold new issue coming out of Vancouver, or Alberta or Denver even though they don't know where Vancouver or Alberta are. That will be the first major sign that the top is near.

I firmly believe that the current opportunity in gold and silver and the companies that mine them, may be presenting you with a once in a lifetime opportunity, where even a modest investment could change your financial destiny.

NEAR TERM OUTLOOK

"Plain and simple; Gold Shares usually lead Gold Bullion both up and down. Check out their respective Charts. Gold Shares look to me like they have already bottomed and have begun the first leg of the next stage of the ongoing Bull Market". This is an excerpt from my July letter where I anticipated that gold was "still in its consolidation phase, but was nearing completion of what in my opinion, using Elliott Wave analysis, was a declining a,b,c,d,e, wave (4) triangle. My best guess then was that the low (if it has not already been made) would be in the $410 to $420 area."

WELL ARE YOU ALL PREPARED TO BUY YET? It takes guts to stand alone but that's what you have to do if you want to make real money. Who among you can really expect to do better than to get in within 10% or 20% of a major bull market?

WARNING:

If you are already invested and you attempt to trade a GOLD RUSH like you trade any other market you will be sadly disappointed. You may be lucky enough to pick a short term top that will make you feel smart for a day or even a week; then suddenly you will be left standing at the station with your hands in your pockets watching as the Gold Rocket ship takes off and you will not have the courage to jump back in at accelerating new highs. You will sit there waiting for the pull back that never comes. If that happens to you , be ultra careful that you don't get sucked back in at or near the HIGH as the front page headlines clamor about the Bull Market in Gold and Silver. If you have just been sucked into taking profits and are now sadly sitting on the side lines SCALE BACK IN NOW.

GOLD JUST BROKE OUT TO NEW TWENTY FIVE YEAR HIGHS

Be careful not to let buying at new breakout highs stop you. Just treat them like Investors Business Daily and a host of other analysts have been treating all new breakout highs for the last ten or fifteen years. Then if you think you're unlucky because the market sells off just after you bought, think again and reconsider whether or not you were unlucky or whether you just got your wish and are now able to scale in at lower rather than higher prices as you build your positions before the Rocket Ship Gold blasts-off.

Aubie Baltin CFA, CTA, CFP, Phd. (retired)
Palm Beach Gardens, FL
[email protected]
561-840-9767

February 3, 2006