19 August 2011: If my understanding is correct, then we are going to see a huge plunge in the stock markets soon. This plunge might bring down gold mining shares, such as happened in the period from July-October 2008. Those same stocks recovered back to their July 2008 peaks by April of 2011, and have been flat since. During that same period (July 2008 to now), the price of gold increased 80%; mining stocks haven't realized any of that 80% gain, but will if and when investors come generally to recognize that the gold-price rise is for real and not merely "just another bubble."
If this market-plunge doesn't bring down gold mining stocks like it did last time, then there is still 80% of the gold-price-rise that's yet to be accounted for in the future price of gold mining shares. This is an enormous potential profit that's still waiting to be exploited by investors.
If this market-plunge does bring down gold mining stocks, then there will be an even higher potential profit to be made by purchasing gold mining shares at that time; that is, in the immediate wake of the stock market collapse.
In either instance, you'll need to have accumulated/saved cash ready to invest in gold mining shares at that time (if you'll not have already done so prior to then).
Between now and then, it therefore makes sense to be investing in either a money market fund, or gold, or gold mining shares, or some combination of these three. All other possible investments will succeed or fail for reasons that are independent of the economy's fundamentals, and are therefore intrinsically riskier, if my understanding of those economic fundamentals turns out to be true. We will know whether my understanding was right or not, depending upon whether or not there is a market-collapse between now and May of 2012.
If there does turn out to be a market-collapse between now and May of 2012, then my understanding of the economy was true, and there will therefore be immense profits to be made by investing in gold mining shares at that time.
After such a market collapse, such a high proportion of investors will already recognize that the gold-price rise is no mere "bubble," so that gold mining shares will be skyrocketing in value, faster and longer than the gold price ever has -- just in order to regain the undervaluation of gold-mining shares prior to this final collapse. The best time to sell those shares will be any time before the economy has recovered from its rape by conservatives, and I expect that this recovery will take decades. During this period, the people who own virtually all (more than 99%) of the nation's wealth (the wealthier half of the U.S. population, including virtually all of the nation's conservatives) will be competing so fiercely for gold, so that the price-levels per ounce of gold will seem insane today. Gold will replace the U.S. dollar as the international currency; so, all of international trade will be denominated in gold.
That's if my understanding of economics is correct. Otherwise: just ignore what I have said.
PS: It is now recognized that "peak gold," or the year in which global gold production peaks, occurred in the year 2000. The cost to mine an ounce of gold is going to cross over the market-price for an ounce of gold, at which time there will be no more companies mining gold, though there will be companies trading gold. That time has not yet nearly come. Moreover, it won't come anytime soon, if the price of gold keeps going up for a long time to come. Virtually all of the gold that will ever be extracted from the ground has already been mined. This, in fact, is one of the reasons why gold even will qualify to be considered to be used as the international currency. (There are, of course, other reasons, as well; but this is one.)
posted by Eric Zuesse @ 8:31 AM
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