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THE
ROCKET SCHOOL OF ECONOMICS


Upward and Downward!
by Professor von Braun

June 14th, 2001

The gold market continues to be volatile with some semi dramatic price swings occurring, often in New York on a Friday afternoon after the London market closes. It seems to us that too many internet commentators are saying that a new bull market in gold has begun. When did the 21-year bear market end? On a recent Friday afternoon in New York? Well that would be nice if it was true.

But is it? Is the investment world suddenly going to switch from the "dotcoms" to junior gold stocks? Will the price of Homestake's shares double in two weeks? Will people make ten fold increases on mining companies with projects in Ghana? Will Alan Greenspan let a rising gold price destroy the perception that he knows what he is doing?

Well let's see, pigs could fly, sucking on a lemon certainly provides a source of vitamin C, and London bridge was eventually sold. Anything is possible.

However should the bullish commentators be wrong and Greenspan's mob be right, then moving too soon into some of these stocks could be hazardous to one financial health.

Buying physical gold at these levels certainly gives one ownership of something that is about as risk free as one can get. Gold ownership is very different to owning gold stocks, more so today than ever before. Gold bullion is what it is whereas gold stocks are simply pieces of paper that have a limited market and it's a market that does not have the support of the investment community behind it. New capital coming into the mining market is scarce. So who is the greater fool going to be?

One buys something assuming that the price will go up which suggests that another buyer will appear. But where are the buyers of gold stocks going to come from? Most of the remaining gold bulls have suffered large losses over the last five years and it's unlikely that new buyers will appear over night. Mining analysts have, in most cases all gone on to other things apart from gold. We know of analysts now working on analyzing coal, steel, oil, gas and electricity companies. Are the internet bulls telling us that all this will change over night as well?

We are at a transition in terms of stocks and commodities, with a bull market in one ending and a bear market in the other also ending. But will there be a sudden switch and perhaps an official announcement that these events have happened? Will you be notified in advance by CNBC that the bull market in stocks has officially ended and that a new bull market in gold has begun? We think not.

But do you need CNBC to tell you the purity of a gold bar purchased from a reputable dealer? One could imagine Maria Bartiroma squawking from the floor of the NYSE with her "today's gold bar purity" report. "The average purity of refined 99.9% pure gold bars dropped 8% in the last quarter according to ........" ? Yes well really.

One stands more chance of hearing that the Venezualan government decided today to nationalize all gold mines within its borders. Or that the Ghanian government decided to do the same.

Whatever happens in the gold market, whether the price rises or falls, blanket recommendations to buy gold stocks are useless unless they are supported by the investment community at large, by good analysis from experienced analysts who in turn need the support of their individual investment firms and by an appetite from investors to buy them.

Owning gold bullion does not have these risks. There is always a market for it and should the price rise then a profit is to be had. Should gold decline to lower levels, well, rest assured that the size of your bullion bar wont be affected. A ten ounce bar will remain a ten ounce bar. It has staying power, a substance that is either missing or difficult to evaluate when it comes to mining company shares, especially many of the juniors.

They suffer from "lackof's" disease, a disease that has become widespread over the last few years. The symptoms are a lack of capital, a lack of interest, a lack of investment support, diminishing property portfolios and declining production.

The physical metal has not escaped this disease either but it appears to be confined to one symptom only, a lack of interest. This symptom while affecting the pricing mechanism does not affect the purity of the metal at all we are told.


The Prof can be contacted by email at profvonb2@aol.com

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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The Rocket School of Economics -- The Lecture Series Index

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  • 23 Aug 2008 -- Through the Looking Glass?
  • 02 Aug 2008 -- Compounding to the Downside!
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  • 06 Sep 2006 -- Gold, Bankers, the Trade Deficit and Unsettled Transactions
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  • 31 May 2006 -- The significance of August 15, 1971.
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  • 09 Nov 2002 -- Carrying a Big Stick.
  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
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  • 06 Apr 2002 -- Currencies versus Gold.
  • 26 Jan 2002 -- Bear Market Strategies.
  • 01 Jan 2002 -- 2002 -- A Perspective.
  • 20 Oct 2001 -- The Storm Clouds are Gathering.
  • 30 Sep 2001 -- What to Say?
  • 01 Jul 2001 -- ...Said the Fly to the Spider.
  • 14 Jun 2001 -- Upward and Downward!
  • 28 May 2001 -- Volatility Time, Again!
  • 14 May 2001 -- The Coming Bull Market in Gold Stocks?
  • 24 Feb 2001 -- High Hopes, Wishful Thinking & The Absurd
  • 20 Feb 2001 -- Who Put the Holes in the Swiss Cheese?
  • 22 Jan 2001 -- US Dollar Admits Identity Crisis!
  • 16 Jan 2001 -- Dear George W.
  • 24 Nov 2000 -- The Bubble Has Burst
  • 11 Nov 2000 -- The Media, Bull Markets & the Gold Price
  • 02 Nov 2000 -- Gold Stocks
  • 29 Oct 2000 -- Oh The Tangled Web We Weave ...When We Set Out to Deceive
  • 24 Oct 2000 -- A Mystery!
  • 16 Oct 2000 -- A Peso Here ...and a Few Thousand Pesos There
  • 10 Oct 2000 -- The Unfolding
  • 30 Sep 2000 -- What's Wrong with THIS Picture?
  • 25 Sep 2000 -- Buy Gold Now!!
  • 23 Sep 2000 -- The Times, They Are a' Changing
  • 15 Sep 2000 -- Time WILL Tell!
  • 27 Aug 2000 -- SS "Paper Assets" Begins to Take on Water
  • 06 Aug 2000 -- The Indian Summer
  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
  • 08 Apr 2000 -- Really, Sir Aldot!
  • 25 Mar 2000 -- Where To From Here?
  • 18 Mar 2000 -- The Gnomes of Zurich
  • 12 Mar 2000 -- The "New" Economy??
  • 06 Mar 2000 -- Two Questions
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  • 28 Feb 2000 -- The Wizard of Oz
  • 06 Feb 2000 -- Here We Go Again!!
  • 15 Jan 2000 -- Comments on the Gold Market
  • 29 Dec 1999 -- No Raw Ingredients Required
  • 28 Dec 1999 -- No Way Out
  • 14 Dec 1999 -- Ho, Ho, Ho!
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