A thoughtful reader asked me a great question the other day: Why shouldn’t a gold bug who thinks gold is going to $5,000 and silver to $100—or more—go all in now?
The quick and easy answer is that many gold bugs who thought similarly in 2011 did exactly that—and got wiped out.
On the other paw, I have actually heard from one subscriber who held on to everything he bought back then and is now back in the black.
This brings me back to my reader’s question, because he didn’t say “tomorrow.”
What happens if we remove the time constraint from the question? What if gold hits new all-time (nominal) highs in USD terms over the months ahead and then goes into another multiyear correction, but comes out even stronger in the end?
If we have very high confidence that gold would indeed cycle back up again and reach new highs again—which I do—why should a patient speculator not go all in with money he or she can afford to commit for the long term? Eventually, payday will come, right?
Well, the first thing I’d say is that the answer is very different if we’re talking about gold and silver bullion versus gold and silver stocks.
The metals themselves can’t go bankrupt.
Personally, bullion is where I put my own long-term savings. I don’t trade in and out of bullion. I sock some away whenever I can. If prices drop significantly, I buy more. I never sell because prices are up. I only sell to dip into my savings because of some other urgent need or opportunity.
So sure, if I had cash to spare and nothing more pressing to do with it, I’d buy more bullion now—even if I thought it might drop lower before heading much higher.
Gold and silver companies we own shares in can, of course, go bankrupt.
And if they don’t go bankrupt, they still have to keep the lights on during the downturn. That often means issuing new shares while prices are down, even for producers. Then come the share rollbacks, and even more dilution for shareholders.
So it’s no surprise that while I have heard from one reader who’s back in the black after all these years of waiting, he’s the only one. The number of baffled, angry, hurt, and tormented messages I’ve received over the years since 2011 tells me that going all in as prices approach record levels doesn’t work out well for most people.
That said, gold hasn’t peaked yet. Silver has a far longer way to go. All the indications are that both will go much higher.
So, am I being too cautious when I insist on not chasing stocks?
When the market is rallying strongly and gold stocks are soaring, is it really the right move to bid low and wait for the market to come to me?
As it happens, I heard my friend Adrian Day say in an interview the other day that relaxing a bit on this front makes sense under current market conditions. He stressed that he doesn’t mean relaxing his selection criteria or due diligence. He argues against ever compromising on those, and I quite agree. But he did say that we may have to get used to paying more than we otherwise would as the gold bull heads higher.
To some degree, I agree. And the higher gold price itself justifies a higher share price—at least for the companies that actually have any gold.
Still, for many companies, nothing has really changed in recent weeks, except that their share prices have risen sharply. I’m not going to chase those stocks.
But that doesn’t mean I’ll be left out in the cold while everyone else joins the party. In fact, Mr. Market just hit my bid this week on a stock that’s been on The Independent Speculator shopping list for months. With no bad news from the company and gold prices still holding above $1,800, some investors have evidently decided to take profits, giving me a chance to get in at the price I wanted. This was a classic case of what my friend Doug Casey calls making volatility our friend.
The market just came to me on a great gold stock I was patient on, so why should I pay more for others?
The only way I can see acting otherwise would be if I were absolutely certain of what the next move is in the commodity or market I’m speculating in. If I knew for sure that the next move in gold was straight up to $1,900 and then $2,000—with no revisiting of $1,700 or even $1,600 first—then I could see buying everything left on my shopping list at current market prices.
But who can ever really know that?
We can feel it’s so. We can find ourselves unable to imagine being wrong. But human imagination often falls short in this department. No one ever really knows what markets will do.
As I’ve said before; this isn’t a race.
And I don’t expect to be able to kiss all the girls.
It’s not my goal to deploy all my cash ASAP. Indeed, going all in isn’t a goal at all. (There’s value in always holding some cash back in case a once-in-a-lifetime opportunity presents itself.)
My goal is to deploy my cash as wisely as possible. That means buying into the best speculations my due diligence turns up at the lowest prices I can get.
Caveat emptor,
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