Gold reached $1000 an ounce on Friday and is likely to soon overtake its all time high of $1030 an ounce.
The level of government intervention has reached a critical point of sheer madness, as many of the monetary policies today are nothing more than the policies of many failed socialist experiments littering the history books.
As the government continue to print and borrow trillions of dollars in a mad attempt to jumpstart the economy and avoid a much needed recession, gold is likely to continue higher.
How risky is investing in gold?
Under normal market conditions investing is precious metals is typically seen as a high risk investment, but during times of economy uncertainty, gold is perceived as a safe place to store money.
The tables have turned and yesterdays low risk investments are today’s high risk investments. The bond market, stock market and real estate market have all become more risky then precious metals and natural resources. The fact that this recession is now on a global scale adds further risk for foreign asset and currency investments.
I read somewhere that a sudden increase in gold prices is like someone firing a gun in a crowded movie theater. Rising gold prices means that the economy is in major trouble and all asset prices are at risk. This is really bad news for professional investors, because when gold is perceived as safe, then confidence in everything else in gone.
When do you sell gold?
The second question I always get when I talk about investing in gold is, “When do you know when to sell?”
If you look through history at a gold chart, you will see that gold has gone up and down. Sometime it has been a good investment and sometime it’s been a bad investment. It all depends on when you buy and when you sell – just like every other investment. Real-estate was a great investment if you sold before the housing crash that started in 2006 and if you didn’t, then it was a bad investment.
If you look at the value of gold with respect to the value of the Dow, you will see during times of recession the Dow comes to equal about one once of gold - as it did in the early 80s. (I learned this from Peter Schiff)
You can also see that gold became a good investment as early as 2000, primarily due to the monetary policies of Allan Greenspan to avoid a much needed recession, due to massive government spending. I wish I could say I started investing in gold in 2000, because I missed out on a great opportunity.
With this in mind, at some point during the current recession, the Dow should equal about one ounce of gold - as it did at the end of the 80s recession. When it does, that is the time to sell. For example, if the Dow falls to 5500 and gold raises to $5500 per ounce.
The other thing to note is that this kind of major recession only happens once in a lifetime. If you miss this opportunity to invest in gold before the government figures out that they need to stop printing money and increase interest rates, gold prices will stabilize and you will probably not see another opportunity like this again in your lifetime.
This is a once in a lifetime opportunity to preserve your wealth, while the market effects of foolish government monetary policies diminishes the wealth of millions.