January 12, 2016
After a chaotic first week of trading to open 2016, today King World News is featuring a powerful interview with one of the greats in the business that discussed the case for gold with the world on the edge of chaos.
James Turk: “As we start the new year Eric, I have been seeing a lot of wrongheaded thinking about gold and silver. Typical is this quote from a Canadian newspaper:
“Gold, which pays no dividend, shines as a store of value when other investments also produce no yield in real, or after-inflation, terms. However, it loses luster as competing assets begin to offer higher payouts.”
It sounds compelling on the surface, but this journalist is actually doing his readers a disservice. Gold is not an investment; it is money. So it should not be compared to investments…
Gold is a sterile asset that does not generate cash flow, just like a stack of hundred-dollar bills does not generate cash flow. They are money, and one uses money to make an investment.
We hold money to store the purchasing power we have earned until we are ready to spend it. Because gold is money, to determine its relative usefulness, gold should be compared to other forms of money — namely, national currencies.
As we saw from the tables included in the interview we did last week, gold and silver over the past 15 years have done far better in preserving purchasing power than any national currency. That’s the important point everyone should be focusing on.
Everyone should also be focusing on gold’s valuation, and in this regard I would like to go back to the interview we did in early December where I said, “it seems reasonable to conclude that gold and silver prices have fallen as far as they are going to fall.”
In the 25 trading days since it closed in New York at $1,054.20, gold has risen about 4.5%. Gold has risen on 14 of those days, about 25% of the time. The cumulative gain on these up days is $144, or an average of $10.29. On the 11 down days, gold dropped $9.12 on average.
The point of looking at these stats is to provide more evidence supporting the possibility that gold did indeed bottom in early December. These advance/decline stats show how gold is making good upside progress. Gold is demonstrating the follow-through necessary for it to be in a bull market.
So did gold actually bottom on December 2? Well, there’s the rub. We don’t know for sure, which is why they say a bell is never wrung at market tops or bottoms. All we can do is rely on the evidence as it presents itself over time.
So far at least, the evidence is turning more positive than negative. But there are still things to worry about. For example, silver has not done as well as gold. The gold/silver ratio since December 2 has risen from 75.4 to 78.9.
I get concerned when I see relative weakness like that in one metal’s performance compared to the other. Generally, in a precious metals bull market, the gold/silver ratio should be falling, not rising.
The next big hurdle that we should be watching for is if gold can finally break above $1,100 while silver does the same thing at $14. These events will provide more solid evidence that the low is in place and the long-term bull market is finally resuming after their four-year correction.
Anyway, there is a simple answer to all of the above. It is a recommendation, Eric, that you and I have discussed many times before. In my view people should be accumulating gold on a regular dollar cost-averaging program.
You may not hit the exact low in gold or silver with your monthly purchase, but over time you will be pleased with the average price at which you accumulated your gold and silver. After all, what you are in effect doing is saving real money, and safe savings are an important asset in today’s uncertain world that is full of overvalued asset classes built upon a mountain of debt.”