The 21st Century Gold Rush
How High Can Gold and Silver Stocks Go? Higher Than You Might Think!by Edward Gofsky. December 9, 2003
The lineups to buy gold resembled movie theatre queues waiting to see Apocalypse Now. Gold prices, a barometer of political and economic fears as well as simple greed, began the 1980s by reaching a record $760 an ounce in Canada -- right through the top of old scales of value. The poor man's precious metal, silver, reached $56 and continued to rise faster than gold.
Waiting for hours with money in pocket or purse from savings bonds and savings accounts, they stood in their jeans, ski jackets, bulky sweaters, construction boots and business suits. Some carried knapsacks. They ranged in age from 20's to middle age. All believed that, sooner or later, purchasing gold and silver would pay off.
All but one were buyers. The solitary seller was cashing in a gift of silver.
"I don't understand the stock market. Gold is on the front page and is easy to follow," said a young woman.
The analysts and economists cite a litany of woes to explain the new gold rush. But to gold and silver buyers, last week and this, the most important factor is that prices are moving and they were afraid of being left behind, empty handed.
Gold sold in Canada for $268 when 1979 began. Amazed in the sudden surge above $700, gold devotees begin to think $1,000 possible soon. The rocketing prices startle the experts and frighten even the analysts who forecast a precious metals boom. The action is so wild that the market experts have stopped forecasting prices.
The gold explosion is the result of many causes and may have many effects. Inside, The Financial Post reports on the outlook for gold and silver.
Industrial users worried about prices, p.4.
Why silver soared faster than gold, p.4.
Canadian traders say silver's popular, p.4.
Secrecy and ritual in London fixing, p.5.
Comment on the political options, p.6.
Shares in gold stocks look even better, p.17.
Ottawa won't announce timing of gold sale, p.18.
The Financial Post - January 1980
This front page story was from the top of the gold and silver market in January 1980 when gold hit $800 and silver was $50+. As you might guess, we are years away from any newspaper articles of this magnitude. But I do predict that by the end of this decade, there will be news stories published around the world similar to this 1980 front page story.
If you want to know my price prediction for gold based on solid historical research, you can read my last essay "The 5th Wave Advance in Gold" to understand my argument for the coming explosion in gold. (I'm also very bullish on silver). In this essay I will focus on gold and silver stocks to see where they might be going in the next 3-5 years. In the last few months I have started out on a unique quest to go back in time to the 1970s and to see what happened to gold and silver stocks when gold hit $500 then $600 then $700 all they way to the $850+ price and $50 silver.
I started my research by going to my local library to look at old newspapers from the 1970s and wow did I find some amazing things! My library had The Financial Post newspapers on microfilm all the way back to 1972 which was the very beginning of the last gold and silver bull market. I quickly went to work spending hours poring over the old papers looking for articles and stories on gold and silver to see if there were any similarities between now and the 1970s. There were a few articles about gold from 1972 to 1975, but the really big stories didn’t really get published until around 1978-79 and especially in January of 1980 with the final blow off top in both gold and silver.
What I really wanted to uncover from the old financial papers were old stock tables so I could see how high most gold and silver stocks got to in January of 1980 and from what level a few years earlier. What I found was absolutely shocking. In 1975 most or all of the gold and silver stocks were trading under $2. Most were penny stocks under $.50. Even with gold up 400% from the 1972 low of $60 to the 1975 top of $200, most gold and silver shares did little to make anyone notice--especially the mass public who had no idea what was going on. It was not until gold bottomed out in late 1976 at $100 and into 1977 that gold and silver stocks started their historic bull market. It would end where some of the prices for gold and silver stocks were unthinkable only a few years earlier. I printed out stock tables from 1975 up until the January '80 top and was totally stunned at what I found. Let me give all you fellow gold and silver investors and people reading this essay who are thinking about buying some gold and silver shares a few of the many examples of the kind of gains that were made in the last gold and silver bull market a generation ago (before cell phones, the internet, and p4 computers) so you can have an example of the kind of gains we may see in the new gold and silver bull in the 21st century.
Lion Mines - 1975 price $.07 / 1980 price $380
YES, that's right. It's not a misprint. You could have bought 1000 shares of Lion Mines in 1975 for around $50 dollars at 7 cents per share and held on for 5 years riding the wild gold and silver bull until 1980 where you then sold those same shares for $380 each for a total profit of around $380,000. Not bad hey! This is only one of many more examples:
- Bankeno – 1975 price $1.25 / 1980 price $430
- Wharf Resources – 1975 price $.40 / 1980 price $560
- Steep Rock – 1975 price $.93 / 1980 price $440
- Mineral Resources – 1975 price $.60 / 1980 price $415
- Azure Resources – 1975 price $.05 / 1980 price $109
These are only a handful of gold and silver stocks that participated in what I consider one of the biggest financial opportunities in the history of human civilization. I don't know of any other time except maybe the .com bubble where in only a 5-year time span you could have tuned so little into so much wealth. Imagine buying in 1975 a handful of gold and silver stocks for under a dollar and selling them in 5 years for $100, $200, or even $500 per share as gold fever ripped through Wall Street. This is a great example of the kind of investing philosophy that Dr. Marc Faber talks about where to be a great investor you only need to make a few good investment decisions in your whole life to be successful. This one decision in 1975 to buy just a handful of gold and silver stocks and sell them near the all time highs of hundreds of dollars per share could have set you up financially for the rest of you life!
I truly believe we are at that same juncture as in 1975, but only this time the fundamentals are even better for gold and silver. The similarities between the 1970s and today are uncanny. I strongly recommend everyone reading this essay find a copy of James Dines' prophetic classic "The Invisible Crash" known around the world as the gold bugs' bible. The book is basically a documentary and case study of the stock and gold markets of the 1960s to mid-1970s. The things that Mr. Dines wrote about back then could have easily been written just last week or talked about on CNBC yesterday.
Here are a few quotes from one of my most cherished books.
"It will be hard for people to believe this but, via inflation, their own government did them in. Practically on a daily basis in 1974 people saw rising prices in grocery stores, as they received fewer goods for their dollars. A full-fledged panic away from paper money could start".
Or how about this nice quote? "When people see gold and silver standing alone amidst the economic ruins, they will realize that we gloom and doomers were actually right. Hopefully, eternal optimists will pay more heed to warnings the next time around".
I like this one the best: "Too much paper has been printed in the past, and will have to be wiped out no matter what."
This is a good one too. "People say gold is useless. Not true. It is demonstrating its function right now. Gold is the ballast for the printing press used in making paper money, and gold relentlessly punishes offenders"
The list of timeless quotes goes on and on in this awesome book, but I will leave you with one last quote from this magical book that is very import and relevant to today's problems in the US dollar and the so-called economic rebound.
"It's dawning on many people that to defend the dollar, US interest rates will have to go up; else, money will be transferred from the U.S to England to take advantage of higher interest rates, and a dollar crisis would ensue. However, if interest rates go up, this might choke off the boom in our economy. What a dilemma!"
WOW that about sums it up. That quote could have been seen in many newspapers just this week!
Like I said before, the similarities between now and then are simply stunning. All of these quotes tell the real story of why gold (and silver) are so important throughout history and that history does really repeat itself. These quotes are the real fundamental cornerstone of why gold is in a bull market today and why the current rally in the general equity markets is only a bear market rally or a secondary reaction based on 45-year low interest rates, several tax cuts and by the fed flooding the world with fiat (unbacked) dollars!! Once the Fed raises interest rates to save the dollar (Coming to a theater near you!), the stock markets, bond markets, housing markets and credit markets will implode.
For anyone reading this essay that would like to know the real story of why the US dollar is doomed unless the Fed starts to raise rates fast, I would highly recommend another one of my most favorite books "The Dollar Crisis" by Richard Duncan. In this book, Mr. Duncan takes you step by step through the causes and the consequences of the US dollar crisis. If you want to know why gold and silver will explode in value, you must have the information in this book. Here is one small quote that gives you an example of why gold and silver are in a bull market and why the dollar is set to fall to much lower levels in the future:
"Balance of payments deficits of an unprecedented magnitude have resulted in credit induced economic over heating on a global scale. The foundations for sustainable economic growth will not be restored until this flaw is corrected and the U.S. trade deficit ceases to flood the world with U.S. dollar liquidity. That will require that the dollar standard be replaced by a new international monetary system that does not generate, or even tolerate, rampant credit creation."
This current environment for the dollar is horrific to say the least. Look at these two charts below. One is of the US dollar index and the other chart is of that the infamous stock, Enron. Don't these two charts look very similar!
If you believe in the Elliott wave theory like I do--that all financial charts are based on greed and fear and that those two human emotions print beautiful fractal (patterns within patterns) pictures--then these two charts should shock everybody! (The numbers in the two charts are not Elliott wave counts, but they are there to help the reader clearly see a similar pattern in both charts) If the dollar even slightly follows the same pattern that Enron did--and at this point it really does look that way--then the US economy, stock market, and social structure have some very hard times ahead.
The only way to stop the waterfall decline in the U.S. dollar is for the Fed to raise interest rates to attract more buyers who at this point are getting better returns in other safer currencies around the world. But if they do that and raise rates, they will cause a simultaneous crash in multiple markets (stock, bond, housing and credit). Only gold and silver and the companies that take it out of the earth will prosper in that environment. Greenspan has painted himself into a corner that many believe he will not be able to get out of.
Investing in gold and silver shares and the physical metal now and holding them for the next 3-5 years could be the only financial decision you have to make in your entire life. No need to trade in and out and get killed on commissions and slippage. Just buy a basket of gold and silver stocks now when many are still under $5 per share and wait until you see headlines in the newspapers similar to the one that I opened my essay up with. Remember, when that front page story was run in January 1980, most gold and silver stocks were trading over $50 per share and lots were trading over $100 -$200. Some were trading even as high as $500 per share when only a few years earlier you could have bought the same stocks quietly for under 1 dollar. I can tell all of you out there that there is not one gold or silver stock that I know of that is anywhere close to trading at or over $100 per share. Just look at the long term picture of the XAU gold/silver stock index. It is not even close to an all time high yet!!! It just recently broke out of its massive text book perfect head and shoulders reversal pattern.
I know it’s hard for most people to think that gold and silver will surpass their old January 1980 highs of $850+ for gold and $50+ for silver, but that is what a 20+ year generational bear market will do to a whole nation of investors who have grown up with falling real assets (gold and silver) and rising paper assets (stocks and bonds). When the tide of human emotion swings and paper assets really start to fall hard (the day the fed bites the bullet and raises interest rates to save the dollar), the lust and fever for real assets will be unbelievable. The .com bubble where many stocks went from pennies to hundreds of dollars per share will look small compared to some of the upcoming gains in the first ever gold and silver bull market of the 21st century. Unlike the .com bubble that was based on easy financing, false profits and aggressive accounting, the coming explosion in gold and silver stocks will be all about supply and demand and a mad fear to protect one's savings from paper destruction. When the entire world wants a piece of the gold and silver stock bull market, there will only be a limited supply of shares so they will have to be bid up to unthinkable levels. The gold and silver stock sector is very small compared to the bond market and the overall stock market and it won't take much to push these stocks into the stratosphere.
I am sure that most of you reading this essay have co-workers that couldn't even name one silver stock, but in 3-5 years they will be telling you what silver stocks to buy and that will be a sign that the top is near.
The situation for gold and silver are almost perfect. Believe me, if gold and silver don't surpass their old 1980 highs in the next 3-5 years, they never will. I strongly believe that after reading dozens of books and most of the writings on gold and silver and pouring over newspapers from the 1970s to early 1980s, that the opportunity in gold and silver and the companies that mine them in the next 3-5 years is a once in a lifetime opportunity. Even a modest investment today in a few silver and gold stocks could change your financial destiny in just a few years.
All comments are welcome.
© 2003 Edward Gofsky
Edward Gofsky | E-mail
Bio: I am a 26 year old private investor living in Vancouver, Canada. I am a disciple of classical technical analysis (Edwards and Magee) and Elliott Wave Theory (Prechter and Neely).