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... I started my research by going
to my local library to look at old newspapers from the 1970’s. My
library had the Financial Post newspapers on microfilm all the way
back to 1972, the beginning of the last gold and silver bull market.
There were a few articles about gold
from 1972 to 1975, but the big stories didn’t really get published
until around 1978-79, and especially in January of 1980 - the final
blow-off top in both gold and silver.
But it was the stock tables that I
found particularly interesting.
In 1975 most or all of the gold and
silver stocks were trading under $2, most were penny stocks under
$.50. Even with gold up 400% from the 1972 low of $60 to the 1975
top of $200, most gold and silver shares did little to make anyone
notice, especially the mass public who had no idea what was going
on.
It was not until gold bottomed out
in late 1976 at $100, and into 1977, that gold and silver stocks
started their historic bull market.
The bull market in gold and silver
stocks would end at prices that were unthinkable only a few years
earlier. I printed out stock tables from 1975 up until the January
1980 top and was totally stunned at what I found. Here are some
examples:
Lion Mines – 1975 price $.07 / 1980
price $380. Yes, that’s not a misprint you could have bought 1000
shares of Lion Mines in 1975 for around $70 dollars and held on
for five years riding the wild gold and silver bull until 1980 where
you could have sold those same shares for $380 each for a total
profit of around $380,000.
Bankeno – 1975 price $1.25 / 1980
price $430
Wharf Resources – 1975 price
$.40 / 1980 price $560
Steep Rock – 1975 price
$.93 / 1980 price $440
Mineral Resources – 1975
price $.60 / 1980 price $415
Azure Resources – 1975 price
$.05 / 1980 price $109
These are only a handful of gold and
silver stocks that participated in what I consider one of the biggest
financial opportunities in the history of human civilization.
I don’t know of any other, except for
maybe the dotcom bubble where in only a 5 year time span you could
have tuned so little into so much wealth. Imagine buying in 1975
a handful of gold and silver stocks for under a dollar and selling
them in 5 years for $100, $200, or even $500 per share as gold fever
ripped through Wall Street.
This is a great example of the kind of investing philosophy that Dr.
Marc Faber talks about when he says that to be a great investor you only need to make a few good
investment decisions in your whole life to be successful.
This one decision in 1975 to buy just a handful of gold and silver
stocks and sell them near the all time high’s of hundreds of dollars
per share could have set you up financially for the rest of you
life.
I truly believe we are at that same
juncture as in 1975, but only this time the fundamentals are even
better for gold and silver. The similarities between the 1970s and
today are uncanny.
I strongly recommend everyone reading
this essay find a copy of James Dines prophetic classic “The Invisible
Crash” known around the world as the gold bugs’ bible. The book
is basically a documentary and case study of the stock and gold
markets of the 1960’s to mid 1970’s. The things that Mr. Dines wrote
about back then could have easily been written just last week or
talked about on CNBC yesterday. Here are a few quotes from one of
my most cherished books.
“It will be hard for people to believe
this but, via inflation, their own government did them in. Practically
on a daily basis in 1974 people saw rising prices in grocery stores,
as they received fewer goods for their dollars. A full-fledged panic
away from paper money could start.”
Or how about this quote: “When people
see gold and silver standing alone amidst the economic ruins, they
will realize that we gloom and doomers were actually right. Hopefully,
eternal optimists will pay more heed to warnings the next time around.”
I like this one the best: “Too much paper has been printed in the
past, and will have to be wiped out no matter what.”
This is a good one too: “People say
gold is useless. Not true. It is demonstrating its function right
now. Gold is the ballast for the printing press used in making paper
money, and gold relentlessly punishes offenders.”
The list of timeless quotes goes on and
on in this awesome book, but I will leave you with one last quote
that is relevant to today’s problems in the U.S dollar, and the
so called economic rebound: “It’s dawning on many people that to
defend the dollar, U.S interest rates will have to go up; else,
money will be transferred from the U.S to England to take advantage
of higher interest rates, and a dollar crisis would ensue. However,
if interest rates go up, this might choke off the boom in our economy.
What a dilemma!”
WELL, THAT QUOTE COULD HAVE APPEARED IN
NEWSPAPERS JUST THIS WEEK. LIKE I SAID, THE SIMILARITIES BETWEEN
NOW AND THEN ARE SIMPLY STUNNING. ALL OF THESE QUOTES TELL THE REAL
STORY OF WHY GOLD (AND SILVER) ARE SO IMPORTANT THROUGH OUT HISTORY,
AND THAT HISTORY DOES REPEAT ITSELF.
These quotes of yesterday explain today
why gold is in a bull market, and why the current rally in the general
equity markets is only a bear market rally, or a secondary reaction
based on 45-year low interest rates, several tax cuts, and a Fed
flooding the world with fiat (unbacked) dollars. Once the Fed raises
interest rates to save the dollar (coming to a theater near you!)
the stock markets, bond markets, housing markets and credit markets
will implode.
For anyone reading this essay that
would like to know more about why the U.S dollar is doomed unless
the Fed starts to raise rates fast, I recommend “The Dollar Crisis”
by Richard Duncan. In his book, Mr. Duncan takes you step by step
through the causes and the consequences of the U.S dollar crisis.
Here is a quote from the book indicating
Duncan’s view that gold and silver are in a bull market and why
the dollar is set to fall to much lower levels in the future “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 U.S. dollar liquidity. That will require that the dollar
standard be replaced by a new international monetary system that
does not generate, or even tolerate, rampant credit creation.”
THIS CURRENT ENVIRONMENT FOR THE DOLLAR
IS HORRIFIC TO SAY THE LEAST.
In my view, the only way to stop the
waterfall decline in the U.S. dollar is for the Fed to raise interest
rates to attract more buyers, who at this point are getting better
returns in safer currencies around the world. But if they do raise
rates, that could cause a simultaneous crash in multiple markets
(stock, bond, housing, credit).
ONLY GOLD AND SILVER AND THE COMPANIES
THAT TAKE IT OUT OF THE EARTH WILL LIKELY PROSPER IN THAT ENVIRONMENT.
GREENSPAN HAS PAINTED HIMSELF INTO A CORNER THAT MANY BELIEVE HE
CANNOT ESCAPE.
I know it’s hard for most people to
think that gold and silver will surpass their old January 1980 highs
of $850+ for gold and $50+ for silver, but that is what a 20+ year
generational bear market will do to investors who have grown up
with falling real assets (gold and silver) and rising paper assets
(stocks and bonds).
When the tide
of human emotion swings and paper assets start to fall hard (The
day the Fed bites the bullet and raises interest rates to save the
dollar), the lust and fever for real assets will be unbelievable.
The dotcom bubble, where many stocks
went from pennies to hundreds of dollars per share, could look small
compared to some of the up coming gains in the first ever gold and
silver bull market of the 21st century. Unlike the dotcom
bubble that was based on easy financing, false profits and aggressive
accounting, the coming explosion in gold and silver stocks will
be all about supply and demand and a mad fear to protect one’s savings
from paper destruction.
When the entire world wants a piece of the gold and silver stock bull
market, there will only be a limited supply of shares so they will
have to be bid up to unthinkable levels. The gold and silver stock
sector is very small compared to the bond market and the overall
stock market and it won’t take much to push these stocks into the
stratosphere.
I am sure that most of you reading this essay have co-workers
that couldn’t even name one silver stock, but in 3-5 years they
will be telling you what silver stocks to buy and that will be a
sign that the top is near.
Until then, in my view, gold and silver
and the companies that mine offer a once in a lifetime opportunity
over the next 3-5 years.
Guest Commentary, by Edward Gofsky
The 21st Century Gold Rush
December 22, 2003
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=29108
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