Gold soared 650% from August 1999 to August 2011.
But it's down 24% from the $1,885 peak and in recent days has whipsawed gold investors in a way they haven't experienced in 30 years.
The bear market has gold bugs reaching for the Dramamine. But we reached for the telephone instead and dialed Singapore—and legendary investment guru Jim Rogers.
Many of Wall Street's biggest investment banks are calling for additional blood-letting—meaning gold prices have a lot more room to fall. But in his usual contrarian manner, Rogers dismissed the consensus.
Indeed, the former hedge-fund manager and best-selling author believes this is a badly needed—even healthy—price correction.
And that will set the stage for a new bull market in gold—and a run to record prices that are sure to come in an era of cheap-money policies by the world's central banks, Rogers told Money Morning during an exclusive interview.
"Gold was setting us up for some kind of correction," Rogers said in a Sunday night telephone interview from his home. "Gold needed a correction—it still needs a correction—and I hope this is the proper correction which gold needs. Then gold—somewhere along the way—will make a bottom and we can all join in the bull market as [it] goes higher and higher."
And make no mistake: The shiny metal is going higher—much higher.
"Gold has to go a lot higher over the next decade or so, because [the world's central banks] keep printing money," he said.
Of course, it was just one week ago when gold suffered its worst two-day rout in 30 years. And even though that's been followed by a five-day winning streak that was capped off by a 2.3% gain yesterday, gold is still in bear-market territory.
"Gold is going to shake out the mystics—there are still a lot of mystics in the market," Rogers said. "I have guys writing me saying this couldn't be happening. I say, "Well, get out your quote machines, it is happening'."
Pundits have identified a litany of catalysts for the metal's decline.
One was Cyprus. When reports surfaced that the tiny country was planning to sell some of its gold reserves to help finance its bailout, they immediately sparked fears that the similarly troubled Portugal, Ireland, Greece, Spain and Italy might follow suit and dump their own gold holdings—no small worry given that those five countries have an aggregate $145 billion in reserves.
Wall Street was also identified as a culprit. Big investment banks such as Goldman Sachs Group Inc. (NYSE: GS) were already forecasting much-lower gold prices, and had even urged customers to "short' the metal. When the sell-off strengthened, many of those institutions slashed their target prices anew—and intensified the decline, the pundits said.
While those were certainly contributing factors, they weren't the root cause, Rogers told Money Morning.
With the advent of exchange-traded funds (ETFs), it's become much easier for individual investors to "buy" gold. As Rogers noted, "people just switched from the miners to the real stuff, [creating] another reason it went up so much [and] set the base for what's happening now."
Exacerbating the situation was the fact that the run-up hasn't been offset by any type of pressure-relieving correction.
"Gold was up 12 years in a row, which is extremely unusual," Rogers said. "I don't know of any asset that's gone up 12 years in a row without a down year. . .equally important is the fact that gold has one correction of 30%—as much as 30%—in 12 years. Now that's very strange. Most [assets] correct 30% every year or two. That's just the way markets work. The peculiar action in gold has been the 12 years [without that correction]. So it was certainly setting us all up for some kind of correction."
The last down year for gold was 2000, when the yellow metal fell 2.8%. The last correction of any magnitude before this one was in Sept. 2011, when it declined 14.7%. That followed a July-September rally of 28.4%, according to our Real Asset Returns research service—and was less than half of the 30% correction that Rogers quantified as being meaningful.
There's obviously no way to predict where gold will bottom, Rogers has said. He's often cited $1,200 an ounce since that would represent a 30% decline. But even if it's more, investors need to keep in mind the inflation-fueling policies the world's central banks seem intent on pursuing. They're bullish for long-term gold prices.
At some point, then, gold becomes too cheap to ignore, Rogers said—displaying the mix of wit, analysis and insight that results in a steady flood of interview requests.
"If it gets to $1,200, I hope that I'm smart enough to buy even more," he said. "If it gets to $1,100, I hope I'm smart enough to buy even more. Speak to the chartists. . .the technicians. . .and [look at] the retracements, or whatever they call them. A 50% retracement is not unusual. A 60% retracement is not unusual. You can do the same math that I can. You can figure out what a 40%, 50% or 60% retracement would mean for someone."
Here's his key point. With declines that steep—taking gold prices down to $1,150, $950 or $750 an ounce—a lot of would-be gold investors will literally throw in the towel, and will abandon gold. That's when negative sentiment will have been maximized, and gold will have bottomed.
"Until people start accepting reality instead of denying reality, we're not going to make the bottom," he said. "Until a lot of people just pack it in and throw gold out the window. . .then gold will make a beautiful bottom and we can all participate in a multi-year bull market."
One of the allures of gold as an investment is that there are so many available options.
"There's ETFs, there's coins, there's bars," Rogers said. "There are many, many ways to invest. But please don't do so unless you've done your homework."
That's especially true of some of the other investment vehicles—including futures contracts and miners.
"Some of the gold-mining stocks are extraordinarily beaten down," he said. "Many of them deserve to be beaten down. I think more money has been lost in buying gold-mining shares over the past 100, 150 years than any other sector, including airlines and railroads. If you know the right ones, or right one, buy it, or them - because somebody will make a lot of money."
Rogers achieved legendary Wall Street status with The Quantum Fund, a hedge fund that's often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor's 500 Index climbed about 50%.
It was after Rogers "retired" from Wall Street in 1980 that Main Street investors got to see him in action-and benefit from his acumen.
Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the "Bull in China." And he made some historic market calls: Rogers predicted China's meteoric growth a good decade before it became apparent, and he subsequently foretold of the powerful updraft in global commodities—an investment category that he continues to favor.
And with both China and commodities, he introduced America's retail investors to profit opportunities that were once the sole purview of Wall Street.
Those prescient calls, his best-selling books, and his regular appearances on popular investment programs on CNBC and elsewhere have made Rogers into a household name.
Over the past five years, he's also helped develop roughly a dozen commodities-based funds—making that once-arcane asset class accessible to a much broader audience of investors.
William Patalon III
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