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By Allen Gibson,
www.InvestorIdeas.com
Aug 18, 2004
The market, as anyone can tell you, is in uncertain
times. To put it mildly.
With good reason, according to Clif Droke. “We
are”, he says, “heading into a 10 year bottom.
The 4th year of every decade sees the 10 year cycle bottom in the
fall. This cycle primarily impacts stock markets, and to some degree the
economy as a whole.”
Droke, the author of numerous
books on trading and technical analysis including “How to Trade Gold & Gold Stocks” & editor of “The
Gold Strategies Review,” says we’re hitting bottom between now and
October.
The good news? Next year, he
says, regardless of the outcome of the election, should be a good one for
stocks. “The 5th year of every decade for the last 100 years
has always been bullish!”
How to cope in the meantime?
Traditionally, in times of
trouble, investors have looked to the
precious metal: Gold.
The very word conjures images of wealth and success,
with good reason. And while it may be a long way from the last heyday of the
junior golds – when companies like Golden Sceptre Resources, Golden
Knight, International Corona, Breakwater, and Goliath were making legends
out of men like Murray Pezim, and millionaires out of ordinary investors –
still gold has been on an impressive run over the last three years.
Which makes some ‘gold
bugs’ very happy. The bugs – people who believe gold is the ultimate
currency – had to endure a long, painful bear market in the ‘80’s. And
over the course of a 9 year bear, you learn a thing or two about the “buy
and hold” philosophy!
“Many
were kind of forced to hold on due to the long bear market. So a lot of the
old ‘bugs’ were in gold stocks for so long they had
to really get to understand the sector.” says securities lawyer Michael
Meyers. Which means there are a lot of astute companies and investors in the
gold game these days.
Mr. Meyers knows all about going long on gold. His
grade 11 metalwork project was a sluicebox. “My family had some placer
claims, and in the summer I’d try out my sluice.”
The fascination with finding the yellow metal stuck, as
is so often the case. Twenty five years later, he’s the President of
Running Fox Resources (TSXV: RUN; OTCPK:
RFXRF). And still digging for
gold.
Gold’s latest run.
Historically, gold has been the refuge in times of
trouble, whether economic or military, and since 2001 it has been on a
strong upward run (see chart) fueled by both fear and a faltering supply.
After all, during the ‘90s, when the price of gold was in the tank, nobody
was building mines. So now there’s a shortage of new production ready to
come on the market. That’s led to a current spate of mergers and
acquisitions among gold producers. Right now, it’s faster to buy
production than dig for it. Echo Bay Mines Ltd.,
for example, merged with Kinross Gold Corporation and TVX Gold Inc. to
create a new company, turning a trio of relatively small companies into one
of the world's top ten miners. Expect to see more deals like
South Africa
’s Gold Field Resources takeover of
Canada
’s Iamgold in a $2.1 billion stock-swap.
Meanwhile, if you’re
willing to take a really long-term
view the news is also encouraging. It seems the price of gold has kept pace
with inflation for over 200 years. So says the World Gold Council. Of
course, that’s if you own the golden metal itself. For most of us,
exposure to gold makes more sense through owning shares in a gold mining
company. And after a long period in the doldrums, conditions are once again
ripe for some big winners to emerge from the small companies who find the
gold in them thar’ hills – and then get bought out by the big boys!
The bug has bitten.
Bryn Jones isn’t looking for the big score, just a
little nest egg. He retired, just last week, after fourteen years as a
support worker in a group home. A seemingly soft-spoken man, he becomes
vociferous when talk turns to the state of the world, and gold in
particular.
“If I had enough money, I’d buy gold and bury it,
like my great-great grandfather did in
Europe
! Failing that, I own gold stocks.”
And only gold
stocks. Why?
Over a cup of coffee on a sunny patio, where we’ve
come to watch the girls go by, he tells me: “I’m a bit of a doomsdayer.
I feel there’s a good chance for big fluctuations in world currencies due
to one disaster or another. Global warming could do it!”
Now not everyone who’s into gold thinks Western
civilization is on its last legs. It’s just that gold and bad news have
always had a close relationship. And the relationship between the price of
gold and the greenback is well established. When the dollar falls, gold
rises. When war breaks out, gold soars!
So part of what’s driving gold is the downward
pressure on currencies, most notably the dollar, over the past few years.
And with the
US
deficit ballooning, the currency pressure looks to be around for while. For
money managers who’ve grown up with a stable dollar environment, a little
diversification into gold has started to look like a sensible thing.
So is this is a good time to own some gold stocks?
Meyers thinks so: “Gold is exciting. For every dollar
of gold income you have, you have more market value than, for instance, a
utility - which can’t grow its profits as quickly. Big things can grow
from small dreams, and people understand that.”
Bryn Jones understands, and
it gives him a reason to keep going. With a pension that’s just enough to
get by on, Bryn is counting on his gold shares to provide the seed money
needed to retreat to the northern woods and buy a small cabin. A place he
can avoid global warming and what he sees as the failings of
capitalism and consumerism where, he says, “there is no balance.”
Bryn plans to find his own balance by getting in shape.
Living a simpler, healthier life in the outdoors, enjoying his twilight
years doing what he loves:
Hiking.
And canoeing.
Oh, and prospecting for gold.
Once the bug’s got ya’ it doesn’t let go for a
looong time.
Allen
R. Gibson
Allen
R. Gibson has over twenty-five years of experience in media and corporate
communications. He has been a reporter, television producer, and
marketing communications consultant for public companies in both the US and
Canada.
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