Opinions are like dollar bills: If you print too many of them, their value goes down.
Every time gold makes a major move in either direction, suddenly every casual observer becomes a soothsayer, and the whole mishmash of conflicting guidance leaves investors more confused than ever.
The truth is, there are no soothsayers, and no one can claim a monopoly on the truth. Even after tracking every heartbeat of the gold and silver markets over the past several years, this Fool remains humbled by the sheer unpredictability of short-term market swings, and the ruthless volatility of precious metals.
I may have called the present breakout in gold right before it occurred, but last year, the onset of a brutal 18-month correction took me completely by surprise. My own long-term investments in shares of miners like Agnico-Eagle (NYSE:AEM), Yamana Gold (NYSE; AUY) and IAMGOLD (NYSE:IAG) were pummeled into the ground, and only my conviction in the longer-term outlook prevented me from selling at a loss and walking away.
Tuning out the noise
Investors have heard it all lately, from Fortune's bold prediction of a gold bubble in the making to Peter Schiff's call for $5,000 per ounce.
In my opinion, any notion of a gold bubble flies in the face of overwhelming fundamental indicators that continue to mount, as the world perceives greater inevitability in the dollar's downward trajectory. Former Fed chairman Alan Greenspan himself recently characterized gold's ascent as "an indication of a very early stage of an endeavor to move away from paper currencies."
With increasingly vocal calls from the world's central banks to replace the dollar as leading reserve currency in favor of a basket of currencies, I submit that the latest bubble declarations will join their predecessors in a junkyard of failed calls issued throughout this nine-year bull market for precious metals.
As for long-term price targets, I would not presume to rule out truly enormous increases for gold if the U.S. government continues to spend, lend, and print dollars as if national solvency didn't matter to the world. While I continue to track these important macroeconomic developments carefully, I prefer to focus upon a long-term price target based upon the current state of affairs rather than hypothetical scenarios.
Get ready, set … get ready
We may very well get a pullback that presents another golden opportunity to build that long-term hedge against dollar devaluation, but then again … we may not. After wallowing in an 18-month range-bound correction before a convincing breakout, every day that gold spends here in unprecedented territory increases the chances that four-digit gold prices represent the "new normal."
One reasonable approach for the wary newcomer could be to obtain some measure of bullion exposure, utilizing a proxy like the SPDR Gold Shares (NYSE:GLD) ETF, and then hope for a pullback to sweeten the deal for a promising miner like Gold Fields (NYSE:GFI) or a royalty play like Royal Gold (NASDAQ:RGLD). While gold itself tends towards violent swings in price, the shares of miners often respond with even larger movements on a percentage basis.
Above all, please keep in mind my admonition voiced during a prior surge in gold some 18 months ago: "Be brave, Fools. There will be corrections along the way -- some of them substantial. Investing in this sector requires strength and conviction, and short-term movements are nothing but noise within the broader trend."
Further gilded Foolishness:
- Yamana's golden age
- An asset more precious than gold
- Some toxic obstacles to mining profits
