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Only Buy Gold Through $2000 Per Ounce

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I want to make this explicit.

For the last decade, I have been saying without reservation "Sell Stocks and Buy Gold." I detail most of the reasons in my last article here on Seeking Alpha.

But the recommendation only lasts through the $2000 per ounce level. The reason goes to investor psychology much more than any driving fundamental. I believe that gold will go much higher than $2000 per ounce but absolute volatility will increase dramatically.

In the last decade, there have been two corrections of approximately 35% in the price of the metal of kings--the one in 2008 and the current setback. In 2008, no one cared. It was just another asset coming down in the crash of that year. No one owned it except crackpot "Gold Bugs" and people who make jewelry for a living.

This correction has been much different. It is still the asset that nobody owns but pretty much everyone has an opinion on, nonetheless. Those opinions are mostly bearish according to every major poll out there. In fact, people are more bearish on gold than at any other time in the last 15 years (there was slightly more expressed bearishness on gold in 1998).

And the price is only down 35%. So strange.

It probably has to do with the headline number, I think. At its deepest low, gold has been down almost 800 dollars from its highs! That is a big, headline number particularly for the Baby Boomers that remember when gold was about $800 just before it crashed after their parents bought it in 1979.

Can you imagine the panic when gold reaches through $3000 per ounce--let us say it gets to $3300--and experiences a 1/3 correction from there? That would be, you guessed it, over ONE THOUSAND DOLLARS! Just like when the DOW crossed through 10,000 in 1999, those big round numbers get the attention. It will happen again.

Now, this is definitely comes from a personal sense about the markets, but it is my recommendation and my reputation. After $2000 per ounce, I will no longer be recommending purchasing gold unless you have a way to hedge your exposure. Most people have no idea how to do this. Fortunately, as a Commodities Trading Adviser (CTA) I will be offering a program for hedging exposure to gold through physical holdings as well as tracking funds like SPDR Gold Shares (GLD). Stay tuned.

David Batson



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own physical gold.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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