Gold is still going strong at this point, but no one can know where it will be in just a month. But it's possible we're seeing a run up of prices now, the same things happened in the '80s before gold lost 35%.
This article published with permission from InvestmentU.com.
In the summer of 1999, I warned my friends that they were playing with fire, that the rip-snorting bull market in Internet and technology stocks was likely to end badly.
Most of them scoffed
and were glad they did. After all, Internet stocks weren’t anywhere near a peak in the summer of 1999. I was early. It would be nine long months before the scaffolding began to shake.
I never dreamed the mania could go for so long, but it did. And it taught me a valuable lesson. You can’t make a rational estimate of when irrational behavior will end.
The same thing happened with the housing bubble seven years ago. Almost no one was buying my skeptical take. I talked to realtors who had been in the business their whole lives and had never witnessed anything like the dramatic run-up in prices that was occurring. Yet most managed to convince themselves
and their clients
that prices would only keep rising, which they did. Until, of course, they didn’t.
Now we’re in the midst of a spectacular run in gold and silver. When I bump into typical investors at cocktail parties or backyard barbecues, they invariably tell me they are loading up on precious metals. “It’s a no-brainer,” a Merrill Lynch broker told me just last night.
I agree. I think some investors have left their brains with the hat-check girl. Here’s why:
Some readers might remind me (and should) that I was bearish on gold
several months ago. Yet gold and silver have only pushed on to higher highs. Just as Internet stocks did. Just as residential real estate did. Just as tulip bulbs did.
Don’t get me wrong. Everyone should own some gold as a hedge against economic or political catastrophe. But if you are piling into gold and silver now
or if it makes up a quarter or more of your portfolio
you are truly living in Las Vegas.
I could be wrong, of course. Maybe gold and silver are still in the early stages of a tremendous run-up. But what if I’m not wrong? A 60-year-old who jumped into gold in 1980 was down more than 60% on his 80 birthday, if he lived that long. And that’s ignoring inflation, something gold bulls are not traditionally inclined to do.
The truth is no one can tell you where gold will be in a month or a year. Still, it wouldn’t hurt to heed the words of Mark Twain:
“History may not repeat itself. But it rhymes.”
Alexander Green is the chief investment strategist at InvestmentU.com
. See more articles by Alexander here