Monday, January 25, 2010

Why I Hope Gold Falls to $1,000

An Article By Jeff Clark:

I had lunch with a reader at a recent conference, and while talking about one of my favorite subjects – gold stocks – I asked why he was invested so heavily in them. “Greed,” he said bluntly and with little hesitation. I appreciated the honesty.
Let’s be frank: I’m here to make money, and so are you. And that’s why I hope gold falls to $1,000 again.
Let’s say Bob has taken our advice and has been storing cash. I’ll use $1,000 as an example. If Bob buys Yamana Gold ( AUY) now, he’d get about 93 shares as I write (at $10.73 per share).
Now, let’s say gold drops to $1,000, about a 10% fall from here, and due to its leverage, AUY sells off by a 2-to-1 margin, meaning 20%. So with that same $1,000, Frank, who’s waited for the downturn, buys 116 shares at around $8.58. Thus, instead of owning 93 shares at $10.73, he owns 116 shares at $8.58.
When Frank sells, he doesn’t just make the difference between $8.58 and $10.73 (an extra 25%), he also makes 125% on the extra 23 shares he owns if Yamana doubles in a couple years, which I expect it to. So two years from now, Bob would have $2,000, but Frank would have $2,500 because he bought more shares and at a lower price. Frank makes 25% more than Bob on the same dollar investment simply by buying when gold and gold stocks fall in price.
I don’t know if we’ll see $1,000 again or not, or if Yamana will fall that low, but I would point out that corrections in the gold price can range as high as 20% (2008 notwithstanding), so a further sell-off in price would not be out of the ordinary. A 20% correction from gold’s peak at $1,212.50 on December 2 would equal $970. That’s not necessarily a prediction, but it shows you that price is certainly possible.


  1. Gold's in the 1090s still, but the dollar is climbing and the futures are in the toilet. If the S&P really does spend some part of tomorrow here at 1081 we'll be breaking some channel lines..

  2. I posted this on the SLV board on Jan 21st..."For now....ZSL(large position)...sell SLV. Hold your physical long term...I'm in SRS, SMN(huge position), TZA, TYP, started a position in FXP...GLTY and be careful here....short the miners, FCX, PCU, AA, X, and the ags. I've been reading the board...just not much to post. Precther on target.(market breaking down...for the past few weeks he has been saying we were now close, now shorting silver/gold. Charles Nenner group also shorting the market. (they moved to cash several weeks ago) Zig Zag for sure...but looks as thought the next downturn has begun. I started building short positions a few weeks ahead of the Precther group.(Was hard to do(with all of the media hype), but my DD said time to start building short positions. Now we see...Funny everyone laughing at Jim Chanos last week(he was talking shorting China, saying bubbles was he right. He is looking to short things like concrete, iron...materials that china has been buying. I think folks are stupid that think we can have a "recovery" without "real" job growth. So pumpers will look like fools soon! Companies can only cut costs so far...decent earnings, but without you and me buying "stuff'...forget recovery anytime soon, IMO...:) BTW, I will buy silver again...just not here. Let em' start raising rates first and thrust us into big time inflation. IMO, even if one buys silver here...long term will be ok and all will be glad they held their physical. I think we are in for the last big correction(in gold/silver) this year, then all hell will break loose by 2012 and better have those silver coins. I'm holding much more silver than gold. GLTY!" I bought puts(105/100/95s on POT as well yesterday..if corn falls below 350 will not bode well for the ags like POT and MOS.Itrade ags for the most part) GL you guys, TexasBlondie

  3. I hope all the investments I plan to buy all take a magical dip right before I buy them. Such wisdom has been bestowed upon me. Next?

  4. Whew! What a day! Wisdom was not with me, but luck was. Held my positions, but oh was it hard. Now if my heart beats will just slow down! TXB...:)