By Claus Vogt
I want to start off my first regular Money and Markets column with a simple statement: I am not a hardcore Gold bug. In other words, I am not always out looking for reasons to justify owning gold. I do not even believe gold is a productive asset! However, I do think gold provides great insurance against political follies, especially those that will likely Lead to inflation.
And while I consider life and investing most fun when there are no reasons to bet against the government, history has shown again and again that sometimes you have to take that position to protect your family and your wealth!
My point is simple: I think the only time to buy gold is when you’re critical of current monetary and fiscal policy.
So up until 2001, I didn’t see a reason to recommend the yellow metal.
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Times were good, the financial markets were booming, the economy was doing okay, and the Fed and its international brethren were doing relatively little harm (other than fueling a stock market bubble). As long as the bubble was holding together there was no need to look for a store of value or for insurance against bad economic policy outcomes.
Besides, Gold was mired in a secular bear market that started back in 1980. So my technical market analysis confirmed the unattractiveness of precious metals
Then, in 2001, I started to see an about-face happening … The Fed implemented a highly inflationary monetary policy, and the Bush administration did the same in regards to their fiscal policy.
That was a clear starting signal for a brand new gold and commodities bull market. And when I looked to my charts for technical confirmation, it looked like there was a huge bottom forming. I knew then that it was one of those times to bet on gold, and I turned out to be right …
Gold’s price quadrupled from $255 on February 21, 2001, to a high of $1,034 on March 17, 2008. But now, many are asking if gold’s bull market mas run its course? When the recession hit, stocks and commodities got clobbered. And gold’s price fell 30 percent. Now, everyone wants to know if gold’s run is dead or if we’re just witnessing a healthy correction in an ongoing secular bull market.
My answer: What we are witnessing right now is just a healthy correction … one that is nearing its end. Remember, I’m not a hardcore gold bug. I have no preconceived idea that gold is the best investment in the world. Instead, I’m just looking at the facts before me.
