Why I Hope Gold Falls to $1,000
Source: Jeff Clark, Casey's Gold & Resource Report (1/25/10)
As a self-professed gold bug, why would I possibly want my favorite investment to fall in value?
Au contraire; my near-constant devotion to all things gold has only served to crystallize one of the things I really want out of this. Here's a hint.
I had lunch with a reader at a recent conference, and while talking about one of my favorite subjects—gold stocks—I asked why he was invested so heavily in them. "Greed," he said bluntly and with little hesitation. I appreciated the honesty.
Let's be frank: I'm here to make money, and so are you. And that's why I hope gold falls to $1,000 again.
Let's say Bob has taken our advice and has been storing cash. I'll use $1,000 as an example. If Bob buys Yamana Gold now, he'd get about 93 shares as I write (at $10.73 per share).
Now, let's say gold drops to $1,000, about a 10% fall from here, and due to its leverage, AUY sells off by a 2-to-1 margin, meaning 20%. So with that same $1,000, Frank, who's waited for the downturn, buys 116 shares at around $8.58. Thus, instead of owning 93 shares at $10.73, he owns 116 shares at $8.58.
When Frank sells, he doesn't just make the difference between $8.58 and $10.73 (an extra 25%), he also makes 125% on the extra 23 shares he owns if Yamana doubles in a couple years, which I expect it to. So two years from now, Bob would have $2,000, but Frank would have $2,500 because he bought more shares and at a lower price. Frank makes 25% more than Bob on the same dollar investment simply by buying when gold and gold stocks fall in price.
Got $5,000 saved up? Multiply the profit by 5. And with larger amounts, you can see we're talking serious money.
I don't know if we'll see $1,000 again or not, or if Yamana will fall that low, but I would point out that corrections in the gold price can range as high as 20% (2008 notwithstanding), so a further sell-off in price would not be out of the ordinary. A 20% correction from gold's peak at $1,212.50 on December 2 would equal $970. That's not necessarily a prediction, but it shows you that price is certainly possible.
Don't like my wish? Remember, it's called a bull market for a reason; it's not a cow market or a puppy market. It's going to try and buck you off. But a correction to $1,000 or even lower can give you the chance to buy more, cheaper. Don't view sell-offs as a bad thing but rather as an opportunity.
Bring on $1,000!
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