Is gold’s recent drop surprising?
Are the fundamentals still the same as they were 10-12 years ago?
Is the price a bargain?
A few weeks ago, prior to gold’s latest leg down, we sat down to talk metals with a man who has expert timing in the commodities market, Jim Rogers.
Today I want to share some of Jim’s perspective on the pullback, including some outtakes that lead to the latest trend in gold…
It’s been a tough few weeks (months? years?) for gold holders.
As I type the metal is down 12% on the month, 27% on the year and down over 35% since its all-time high in 2011.
Looking at the situation from an opportunity aspect, we’ve certainly entered bargain territory.
But is now the time to buy? Is the bottom in?
Below you’ll find a few answers from investment expert and commodity guru Jim Rogers. Plus a new trend to follow in gold.
Question: After a 12-year boom market in gold, does the recent drop in prices surprise you?
No, not in the least. I mean, no matter how many times I’ve shouted from the rooftops, nothing goes up 12 years in a row without a down year. Now in those 12 years, gold only had one correction of 30 percent. Most markets correct 30 or 40 percent every year or two. So the anomaly was how strong gold was for 12 years. It’s long overdue for a major correction, and let’s hope it is going to finally have one. And then we can set a new bottom and things can start over.
Question: Do you think the current price per ounce is a bargain, or do you see it going lower? Where would you be a buyer?
Well, at the moment everybody in the world is extremely bearish. You look at the commitments on traders, you look at all of the indicators, and you see that everybody bearish on gold. So normally when people are this bearish after this kind of collapse, you have a rally. I own gold and I haven’t sold any gold. I mean, I might go buy a little bit in the next day or two if I stumble on to some gold. But I don’t think the final bottom has
[Editor's note: remember, this response was recorded before gold's most recent $150 drop. So maybe we're closer to that "bottom" that Jim speaks of.]
Question: Do you think the same fundamental argument for buying gold a decade ago still holds true today?
A decade ago most people weren’t aware of how much money was being printed and how many currencies were being debased.
This is the first time in recorded history that every major central bank in the world is debasing their currency — consciously, publically doing their best to drive down the value of their currency, by printing staggering amounts.
This has never happened in world history, not in recorded history anyway. This is a major change as to what was happening 10, 12, 15 years ago, because it’s never happened. This is going to lead to serious dislocations for all of us, I don’t know what, who or how but I do know that I’m not selling my gold.
Question: So the fundamental argument today is stronger than 10 years ago?
For protection against currency debasement it still is stronger than it was.
Money printing? Currency debasement? Fundamental support for metals?
Here in the U.S. the answers can be found in one simple chart. Take a look at the red line in the chart below:
Over the past 12 years the U.S. money stock (M2, noted in the red line in the chart) has more than doubled. Yeah, you read that correct, the money supply has doubled in 12 years. It’s stunning proof of what Rogers says about a conscious, public attempt to drive down the value of currency.
Even without an official “recession” the Fed has been egregiously adding to the monetary supply (M2.) Heck, since 2011 we’ve seen a larger rise in M2 than we did back in the palpable recession of 2008.
And as you can see, at the right side of the chart, there’s a strange trend occurring too.
For most of the 12-year period shown, gold has moved almost in lock-step with the increase in money supply — after all, with increased inflation and dismal expectations for the U.S. dollar, the demand for gold was shooting through the roof.
Recently though, the blue line (gold) has started to diverge from the ever-increasing supply of money.
To be clear, (if you were to extend the timeframe in the chart and look at the 30 year history) there hasn’t always been a clear relationship between the money supply and the price of gold.
Strange, but true. It’s important to note that the relationship (between the money supply and gold) has to do with the trust of the U.S. dollar. Indeed, it’s all about perception here — and right now the market’s perception is that the economy and the U.S. dollar are all set to head higher. Meanwhile the bottom dropped out of the gold market and interest rates are starting to jump — on a weekly basis rates jumped higher than they have in 26 years!
But, here’s the thing…
I’m not sold on this strong-dollar/no-inflation argument. Fact is, there’s A LOT of reason to be concerned about the stability of U.S. dollar and other global currencies. Just look at the numbers.
Since 2001 the M2 money supply has doubled. By another metric, the Bureau of Labor Statistics calculator, the dollar has lost approximately 25% of its value (in just 12 years!)
Pick your poison, those are both scary stats. They’re also fundamental reasoning for buying gold.
Buy Gold Like A Legendary Investor
Rogers plans to be a buyer when gold hits a “bottom.” So where’s the bottom, you may ask?
Well if you’re looking for physical metal, the bottom is getting a lot closer by the day!
Just look at what we’re seeing in Asia.
“Slump Spurs Physical Demand” Bloomberg announced this week. Buyers from India to China are using this pullback to stock up on the metal. Those that wanted to buy gold at, say, $1,900, $1,700 or even $1,500 have a great opportunity to “buy low” in today’s market.
Same goes for coin buyers here in the U.S. “The demand remains at an unprecedented level” U.S. Mint director Richard Peterson said earlier this month. Looking further into the data, after April’s pullback in prices, the mint sold its highest amount of gold coins since 2009. Indeed, silver sales for the first half of the year have already reached a record high.
Physical demand is catching fire. It’s the same type of mentality that gets people to line up at retailers on black Friday. Only this time around instead of wanting to catch a deal on a flat-screen TV, these buyers are looking to load up on the inflation protection that only gold can offer.
Gold shops in Asia, the U.S. Mint or even places like eBay are starting to buzz with physical metal demand.
I’m not going to call the bottom in this market just yet. But, rest assured that I’m looking to pick up some physical metal on the cheap — and today’s prospects are very tempting.
With gold’s fundamental argument still stronger than ever, we’ll see if the Midas metal can catch a bid soon. When it does, I hope you and I can say we picked up a few ounces at a tremendous discount.