Gold prices struggled again earlier today, closing at approximately $1,575 per ounce. While gold has not fallen much lately, it also hasn’t gone up much. It seems to be trading in a somewhat narrow range. This is surprising many gold bugs.
There are certainly many reasons to favor gold right now. Bernanke is creating digital money out of thin air like crazy. It really is unprecedented what he and the Fed have done in the last 5 years. Meanwhile, Cyprus has taught us that banks are no longer safe and that there is really nowhere you can get complete safety. On top of all of this, the U.S. government keeps spending crazy amounts of money, racking up more debt, and ignoring the massive unfunded liabilities from the so-called entitlement programs.
Of course, there might be a few reasons to be bearish on gold. While the U.S. dollar is a fiat currency that seems like garbage to some inside the hard money camp, it is still more highly favored than the euro because of the disastrous European Union. Even the Japanese yen is not strong these days, as the government there is threatening much higher inflation. Another reason to possibly be bearish on gold is just the fact that it may not do well in a recession and it is obvious that the economy is struggling.
Still, if you think gold should be going much higher, then don’t second guess yourself. I don’t think you should ever put all of your eggs in one basket, but now is certainly an opportunity to expand your position in gold. The same goes for gold stocks, which have really been beaten down.
It is important to remember that gold was less than $300 an ounce back in 2001. If you look at it in this context, it has been an incredible investment. It is not surprising that it would take a “breather”, even if it is poised to go higher.
The lack of excitement in gold these days is a good refresher lesson for Austrian school economists. While you think gold should be going higher, most other people don’t (or are at least not excited enough to take any action to buy it). You can’t predict the future. In fact, that is really what Austrian economics teaches us. Everything is dependent on human action. I can’t predict whether my next door neighbor will wake up tomorrow morning and suddenly want to get out of the dollar and buy gold. I certainly can’t predict what billions of people around the world will do.
The only thing we can do is take a good guess based on what we know to be true. The fact that Bernanke and company are creating massive monetary inflation is an indication that prices are likely to go up in the future. Right now, the new money seems to be flooding into the stock market. Maybe we will see much higher oil prices next. Maybe it will be food. Maybe it will be gold and silver. Or maybe it will be all of the above.
Now is actually the time to make money. If you think gold is going higher, don’t wait for confirmation. If you wait until it hits $2,000 per ounce, then you will have missed out on the easy money. And even worse, you might be afraid to buy at that point. If you really think gold is going higher, don’t wait for the mania to hit. Get in at the bottom (which was really over a decade ago) and watch everyone else chase the mania. If you are really good, then you will take some dollar profits when the mania does hit.
This is important for any potential investment or entrepreneurial activity. Sometimes you shouldn’t wait for confirmation. If you wait, then you will have missed the opportunity. If you see something that others don’t, then take advantage of it while the others are still blind to it.