   |
|||
Gold suffers from an instant gratification cultureDr Richard
Appel May 12, 2005 - In our world of ever-present lotteries, an exploding gambling industry, the recently ended 20+ year equity Bull Market, and constantly rising home prices, Americans have become accustomed, nay addicted, to seeking action. We seem to be attracted, as surely as a moth is to light on a dark night, to fast, readily attained profits. We have become a nation of gamblers who are no longer satisfied with the overworked euphemism, "long-term investor". Yes, everyone seems to believe they are one. Yet, they become impatient with trendless price action or the earliest adversity. We are no longer willing to patiently wait for our profits to accrue. We must have them now, or we will find another game or market in which to play. Momentum investing has gradually become a dominant element of the investing landscape. It is primarily practiced in the stock market. There, professional and amateur players alike chase after the next market sector that appears to be on the verge of roaring higher in price. Now, it has spread to the housing industry where investors not only purchase dwellings in which they intend to live, but a second, third or even more homes for investment purposes. Money flows into the hottest national markets and pushes their prices further and further into the stratosphere. This, as investors scramble so that they will not miss any virtually guaranteed profits. This mentality is insidious. Not only does it consume those who are immersed in this endeavor, but it filters through the balance of the investment community. It is as though the quest for fast profits has spread beyond the compulsive gamblers, who are driven by their need to be players, but has also sparked into action the latent gambling instinct in us all. Is it any wonder that gold's secular Bull Market cannot attract a following? Gold drearily began its Bull Market in the summer of 1999. From its $252 starting point it quickly rallied to about $320, before it again decayed in price. The slow, tedious decline lasted for a year and a half before the noble metal posted a double bottom at $255 in January, 2001. Thus, it began its new bull life with a whimper. Should we have expected the unfolding of its Bull Market to be much different? After advancing from its $255 low, gold steadily plodded higher. Its rise was frequently punctuated by frightening price reversals. Each new temporary peak was followed by a harrowing brief decline that did not end until its price was10% to 17% lower. Still, every Bull Market high was succeeded within seven months by yet another. Again and again, these sharp set-backs took the breaths away from and panicked the members of the gold community. For the instant gratification crowd it was not a fun time! The gold stocks were a different story. Here it was far worse! This was painfully true for even those with an authentic long-term perspective, and who possessed the will and courage to follow it. In hindsight, another reason appears obvious why today's typical investor shunned gold stocks. Most of those who invested in the gold sector neither recognized the existence of gold's Bull Market nor understood the reasons and causes for its existence. The major gold mining companies as seen through the action of the HUI, began their Bull Market during the last quarter of 2000. This was near the thoroughly depressed 35 level. It boggles my mind that despite the fact that it has already struck a high approaching 260, few still believe that a major Bull Market even exists. While each of its three major bull advances drove prices breathtakingly higher, each following grinding, gut-wrenching decline tested the resolve of its investors, and drove the weak-hearted impatient crowd towards the exits. The HUI's first important high occurred at about 80 in mid-2001. It took about nine months before that level was breached by a new major up-wave. Its next peak at 155 was posted in mid-2002, before a correction set in. In this case, it was not until about fourteen months later that 155 was surpassed. Now, we are entwined is the present installment of the Chinese Water Torture as it is applied to gold stocks. At the end of November, 2003, the HUI nudged 260. From that lofty point it repeatedly fell and grudgingly rose, and is yet to surpass that point. We have been forced to endure eighteen months since that peak, and we still find ourselves with the HUI over eighty points lower. Given the great pain, and the paper and real losses that have been endured by gold stock investors over this extended period, it is doubtful that any but the most resolute gold bugs remain invested in its stocks. As poorly as investments in the gold producing companies have fared during the past year and a half, those who invested in the junior companies have suffered far worse. The exploration and development companies by their nature are very thinly traded. This exposes them to both wide upward and downward price swings. It is currently not unusual for many of these nascent companies to be trading below 50% of their Bull Market highs. In fact, a large number of these companies have fallen to levels at which they traded when gold sold below $300 an ounce. Investors in these shares truly rode an excited up escalator numerous times during their Bull Market, only to suffer despair each time their stocks spiraled lower. I believe that few of today's legion of equity investors have a sufficient working knowledge of investing and markets to survive anything but a Bull Market! This prevents them from becoming truly committed to any investment. How can they remain invested in something if its price keeps falling, and the only reason that they purchased it was because some alleged expert or group of experts told them that it was a wise decision? Or worse yet, because they watched its rising price and wanted to jump on the bandwagon in their effort to become one of the momentum pros. The investment media, that has a vested interest in attracting and keeping money in equities, constantly fills the airwaves with statements like, " we're only in a soft patch", and that common stocks will soon roar higher. Not only is this absent in the precious metals markets, but these same "talking heads" unanimously declare that gold is at best a sterile investment. I believe that it is to the advantage of all those who believe in gold's Bull Market to recognize and accept the following: it will not be for a few years at minimum that the masses will realize that gold is even in a Bull Market. Yes, there will be trickles of newcomers attracted to each major price advance. Yet, until that time arrives, and the gold price is far higher, we will continue to benefit from the periodic, short-lived rallies in gold and silver. However, we will also be forced to persevere a number of similar sharp or extended price collapses. For those who invest in the major and junior gold stocks, a different future should be expected. The brief Bull Market explosions in price will be followed by similar long extended corrective periods such as described above. This is when a long vacation should be contemplated using some of the money that was taken off of the table near each intermediate peak. After all, the action of the
gold complex Bull Market is not yet conducive to satisfying the
expectations of our instant gratification society. Rest assured,
they will ultimately enter gold and its related investments en
masse. When they do, it will be time to prepare to sell them
your holdings, but at a substantial premium to your cost basis. Appel Archives. I publish Financial Insights. It is a monthly newsletter in which I discuss gold, the financial markets, as well as various junior resource stocks that I believe offer great price appreciation potential. Disclaimer. Please visit my website www.financialinsights.org where you will be able to view previous issues of Financial Insights, as well as the companies that I am presently following. You will also be able to learn about me and about a special subscription offer.
321gold Inc |
