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A Long Time Before You Get Your Money Back
Jerry Welch - IF - Tue Feb 13, 10:44AM CST

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

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I had a number of requests to publish in full the column I mentioned here on Inside Futures on Sunday entitled, "A Long Time Before You Get Your Money Back." Here it is and from mid-2010.


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Every dog has its day and so does every market. At some point, a market will come into its own and stage a rally that is spectacular. When that time arrives there is no holding prices in check. Values soar to levels that are simply breathtaking. And over the past few years, the number of markets that shot into the stratosphere when their time arrived are numerous and varied.

Not long ago: K.C. wheat prices rallied from $4 to $26 a bushel. Copper prices sky rocketed from $190 to $850 a ton. Crude oil shot from less than $20 to $145 a barrel. Several livestock and grain markets have performed in a similar manner including rice, sugar and cocoa. The list of markets that have rallied to where the air is rarefied is a long one. And it is no longer an uncommon event.

Markets reaching unparalleled heights share a common fate. They collapse once prices rally high enough to where demand is totally destroyed. When that trigger point arrives, values plunge. Prices do not gently, set back a bit. Values do not casually, retrench making for a healthier market. Prices collapse amid panic selling by those that bought into the market when it was dear, rather than buying it while it was cheap.

Gold is a market that has come into its own. In November, the yellow metal only saw two losing sessions and gained 13% to post the largest one month gain since 1999. For the year, gold has soared 33%, showing gains in 17 out of the past 20 weeks. And despite gold being historically high priced, investors and the hot money funds in search of hot markets are lining up as buyers convinced the yellow metal is still a bargain.

Over the past 10 years, gold rose 270%, outperforming both stocks and real estate as an investment. Gold tends to do well in periods of currency crisis and with the US dollar resting on a 14 year low and equities far below the levels of 2 years ago, there has been a mad rush into the yellow metal as a safe haven.

But this is not the first time gold has come into its own. In 1980, the greenback was also in trouble and equities slumping. Consequently, gold was bid up to the unheard of price of $850 an ounce. Once the market peaked out, however, gold fell back to $350 an ounce and remained depressed for 20 long years.

That means if you bought gold in the early 1980s at $350 an ounce, you would have made no money for nearly 20 years when factoring in inflation. Gold bugs, on the other hand, argue that a 20 year bear market, 2 decades of sluggish prices is not the norm and such an example is a poor one to use. Well, excuse me!

In a November 18, Reuters Blog entitled, The Fed is Sending Gold Higher, by Rolfe Winkler, he states, eventually the value of all paper (money) youve accumulated goes to zero. The trick is to turn that paper into tangible assets with tangible value. Gold may be volatile, but at least it maintains is real value.

Mr. Winkler displays a chart of gold prices covering seven and a half centuries. According to the chart, if you bought gold between the years 1315 and 1765, you did not make money until the mid-1960s. I assume that means that gold, during that period, maintain real value but it also suggests it took as long as 650 years to get your money back.

There may be far more coming to the upside for gold since those in step with the market continue to forecast higher prices amid a weaker US dollar. Legendary trader Jimmy Rogers is calling for $2000 an ounce, soon. Another well-known metal trader says gold will hit $3000 in 2 years. A third gold enthusiast is on record calling for $5000 an ounce before President Obama leaves office.

I understand that gold could be reach $2000 an ounce, soon. Or, $3000 within 2 years. I can accept the theory that $5000 gold may be seen by the time President Obama leaves office. And I understand fully the risk involved if I buy gold at this weeks price of $1220 an ounce that it may take 20 years to get my money back. I am aware of the various scenarios that a face a buyer of gold with prices at historic highs.

But if I buy gold and have to wait 650 years to show a profit my wife will kill me. I know her well. There is no way she will wait that long. Women! Go figure.

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The time is 10:43 a.m. Chicago

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