Forum Archive Index - January 2003

["Nick McCaw" <nick.mccaw@golearn.co.nz>]

This gold market…

 

A bunch of us have been hyping it for months now and have been rewarded for our speculation. Many gold stocks have doubled or tripled and most are showing double digit returns within months. Despite these returns, the media and wider market haven’t even begun to get their teeth into them. This could be a real lesson in crowd behavior in the coming months and is extremely important if you hold or buy some exposure to the gold market.

 

It’s worth noting that if you bought gold itself in NZD, you wouldn’t be much better off than simply owning the cash. Direct purchase of gold is fine for storing your savings, although many would suggest that silver is just as good at the moment. The serious money will always be made in Gold stocks. These ugly little companies have the worst business you can imagine. Everything about mining is uncertain and expensive, mining stocks are not investments, they are pure speculation, and you have to treat them as such.

 

The thing about speculating is that you need a short term ownership view based upon a long term contrarian approach. Philosophically that could mean anything, but realistically it means that you want to buy gold stocks before the masses start hyping them, and sell them when every broker in town is dumping their clients into gold exploration funds and there’s a golden bull on the cover of TIME.

 

The future is awfully difficult to predict, but one thing can be assumed with a fair amount of certainty, If the gold price continues to increase, or even consolidates at these levels, then the general investing public will at some stage start buying gold stocks like they were 1998 technology IPO’s. This process of hysteria is likely to have an enormous effect of the tiny group of illiquid gold sticks that are available for purchase. The capitalization of the gold stock sector is so small “:it will be like forcing the contents of the Hoover Dam through a hose pipe.” (borrowed quote)

 

So with all that hyping and emotion out of the way it is time to think realistically about your position on gold and gold stocks. This is not a game which you can play lightly. If you got left holding tech stocks in 2000 then you probably haven’t got the mettle to really be a safe speculator in a gold stock bull market. I spend a lot of time thinking about the lack of discipline that I have been guilty of in the past, and regularly pull myself up for arrogant and hopeful investing. Just remember that gold stocks are speculations. If you can keep that in mind, then this could be a once in a lifetime opportunity to make serious gains from an explosive opportunity. If you abuse your common sense, then you will get left without a chair when the music stops.

 

Enjoy it while it lasts. Learn as much as you can about it before you do it.

 

NM