Great Depression Online Archive Issue:

When to Sell Gold

Great Depression Online
Long Beach, CA
November 23, 2010

Inside This Issue You Will Discover…

*** What Happened to Gold?
*** Is Now the Time to Sell Gold?
*** When to Sell Gold
*** And More

What Happened to Gold?

What happened to gold?  After spiking up above $1,420 per ounce earlier this month gold has dropped to the $1,350 range.

Is this just a temporary correction in gold’s epic march onward and upward?  Or is this the beginning of the end to the great gold bull market of the last ten years?

Quite frankly we don’t know.  Our gut tells us gold still has more room to run before this is over.  But along the way it could fall.  In fact, it could fall a lot.

For example, remember back to early 2008 when gold first topped $1,000 per ounce.  The milestone was not held for long at the time.  Before the year was over, gold fell over 20 percent to below $800 per ounce.  Shortly after it resumed its long-term bull market advance.

What this means is gold’s recent drop is well within the parameters of the bull market trend.  So how will you know when it’s time to sell…

Is Now the Time to Sell Gold?

At $1,350 per ounce gold may not be a great buying opportunity.  It’s certainly not as good as when it was $400 or $600 per ounce.

However, if you were prescient enough to buy early, is now the time to sell?  And if not now, when?

To answer these questions – and more – we bring you a guest essay from Terry Coxon, Senior Editor, at Casey Research.

Enjoy,

M.N. Gordon
Great Depression Online

---

When to Sell Gold

By Terry Coxon, Senior Editor, Casey Research  

By now you have plenty of reason to congratulate yourself for having boarded the gold bandwagon.  The early tickets are the cheap ones, and you’ve already had quite a ride.  The best of the ride, I believe, is yet to come, and it should be very good indeed.  It should be so much fun that your wallet may start to feel a bit giddy – which can be dangerous.  So it would be wise to consider, now, how things will be and how they will feel when the current bull market in gold reaches its “end of days.”  Because it will end.

Buying at the right time is the key to building profits.  Selling at the right time is the key to collecting them.

The 1980 Peak

In 1980, gold briefly touched the then record price of $850 per ounce.  In terms of purchasing power, that would be $2,400 in today’s dollars.  And for the value of the world’s entire gold stockpile to attain the same share of the world’s total wealth that it represented at the 1980 peak, the price would need to reach $5,800 per ounce.

But so what?  Before you can look to those numbers for guidance about what the peak in gold’s bull market will look like, you need to consider how the process that drove the earlier bull market compares with what is happening today.

~~~~~~Avoid the Carnage~~~~~~

China’s Secret Plot to Dump the Dollar…

…and 3 Surprising Places You Should Put Your Money Right Now to Avoid the Carnage and Prosper.  If you thought the 2008 market freefall was bad, wait until you see what’s on the horizon.

The government is spending money like a drunken sailor…federal printing presses are working at warp speed, cranking out billions in inflation-feeding bailout dollars…and now China has put a plan into motion that could threaten your solvency…

Unless You Take Action Now

~~~~~~~~~~~~~~~~~~~~~~~~~

The earlier bull market was driven by price inflation in the world’s reserve currency, the dollar, that reached an annual rate of 14%.  The more expensive it became to use dollars as a store of value (i.e., the more rapidly the dollar’s purchasing power was declining), the more attractive gold became as an alternative way to store value.

The dollar is still the world’s reserve currency.  (And not just for central banks.  Among individuals and private businesses that want to diversify out of their home currency, the dollar is still Number One.)  And the force driving the bull market in gold is once again price inflation.  But this time it isn’t actual price inflation that is on the mind of gold buyers around the world.  It is the potential for price inflation that is building up.  That build-up is coming from:

- Rapid expansion in the U.S. monetary base through the Federal Reserve’s asset purchases.  Most of that expansion has yet to be reflected in a growth in the U.S. money supply.  It is still sitting, like a charge in a capacitor, waiting for something to set it off.  There was no similar liquidity bomb stored in the U.S. economy's closet during the years leading up to 1980.

- Unprecedented growth in federal government debt, which adds to the political attractiveness of price inflation.  There were federal deficits during the 1970s, but nothing like today’s – just enough to give the party out of power at any time something to talk about.

- The accumulation of U.S. Treasury debt and privately issued dollar debt in the hands of foreign investors.  U.S. debt to foreigners wasn't a factor in the years leading up to gold’s 1980 peak.  This time around, it could be a powerful force for accelerating inflation.  Even moderate inflation could spook foreign investors.  Their sales of Treasuries and other dollar-denominated IOUs would push down the foreign exchange value of the dollar, which would raise the cost of imports coming into the U.S., which would further stimulate price inflation.  A nasty feedback.

And foreign holdings of U.S. debt operate as a second vector feeding the political attractiveness of dollar price inflation.  Depreciation of the dollar can be framed as a clever way to shortchange foreign creditors.  “It hurts THEM, not US” would be the slogan.

All those factors are working to make price inflation distinctly more severe than it was in the 1970s, which argues for a higher peak price for gold.  When the metal does surpass its 1980 peak in purchasing power, the event is likely to be widely reported in the press.  I suggest that you not attach any significance to the event.  It won’t be time to sell.

Sell Signals

But the time to sell will come.  Here are the signs I’ll be looking for.

Gold and gold-related financial products will be commonplace.

Even today, most financial institutions still hold the “barbarous relic” attitude toward gold.  Yes, you can get GLD through any stockbroker, but with a few exceptions, the brokerage firm’s heart isn’t in it.  They offer GLD for the same reason even the best seafood restaurants have a steak on the menu – they know someone will ask for one, even though that’s not what they are in business to serve.

Before the bull market is over, that attitude will change. Mainline brokerage firms won’t just have gold-related products available, they will advertise them.  They will boast about them.  They’ll claim to specialize in them.  And it won’t be just the brokers.  Your local bank will offer gold-related CDs.  Your insurance company may be offering life insurance denominated in ounces.

Gold going mainstream won’t mean that the bull market is over, but it will be a sign that it’s getting long in the tooth.  An early warning signal.

You’ll be hearing gold chatter wherever people talk about investing.

The inhabitants of Financial News TV Land will be talking about gold approvingly, and each of them will be trying to suggest he was early in recognizing the gold bull market.  You won’t be able to get through a golf game or a cocktail party without someone talking about gold.  Even your brother-in-law will want to explain it to you.

The gold standard will become respectable.

Today advocates of the gold standard are seen as standing to the good side of whacko, but not by a big margin.  But as gold attracts more converts in the investment world, the politicians will want to associate themselves with it by proposing some brand or other of gold convertibility for the dollar.  Respectability for the gold standard will be a sign that a majority of the people who are going to buy gold already have.

Other things will look cheap to you.

When gold nears its peak, even if you suspect that that’s what’s happening, you won’t feel certain about it.  But when you start seeing investments – probably conventional stocks – that look like strong bargains, treat those sightings as a sign it’s time to start selling gold.  You know the reasons that led you to buy gold.  If you are tempted to sell part of your holdings to buy something whose low price seems to give it better prospects, then you probably will be selling at the right time.  You could be selling to the last new buyer.

Sincerely,

Terry Coxon, Senior Editor
Casey Research

P.S.  With gold now over $1,400 an ounce, where do we go from here?  To stay updated on the gold bull market and the strongest gold stocks… and find out how high gold might go… and be alerted when it’s time to sell and collect your profits… check out BIG GOLD – Casey’s monthly advisory on all things precious metals and large-cap gold stocks.  At only $79 per year, it’s by far the best investment you can make.  Click here for a risk-free 3-month trial with money-back guarantee.

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