The Wrong and Right Way to Buy Gold, Part III

There are a handful of gold analysts who have called one or two major turns in the market. But I know of none who have called both the bottoms and the tops — except, that is, for Larry Edelson.

For the evidence, check out the chart above.

But Larry’s most recent warning is among the most striking and relevant of all. Just this week, he wrote that gold would suffer one last plunge to the low $1,100-per-ounce area before bottoming and beginning the next leg of its great bull market.

Once again, while most other gold analysts were confused, Larry’s loyal subscribers had his very clear instructions on exactly what to do:

“Build cash!”

“Get ready for a major bottom in gold!”

“But hold your fire!”

His message couldn’t have been clearer:

GET READY TO BE A SCALE-DOWN BUYER!

Now, however, that final plunge in gold is under way, and the timing for my third and concluding interview with Larry Edelson couldn’t be better. Here’s the transcript …

Martin Weiss: Larry, where exactly do you see gold bottoming and what do you expect next?

Larry Edelson: Gold should hit rock bottom in the $1,100 to $1,200 area and then begin a massive move that will carry the yellow metal to $5,000 and beyond. So, based on Thursday’s closing price for spot bullion, the downside risk is only another $160 or so, but the upside potential is something like 23 times that number.

Martin: Isn’t that a good enough reason to start buying right now?

Larry: In very small amounts, sure. But if you put a lot of money into gold right now … and then, within a matter of days or even hours, you see it plunge some more, you’re not going to be very happy, are you?

Martin: No. But …

Larry: If you do put most or all of your money in all at once, when the time does come to back up the truck and buy in big amounts, you’re going to be gun shy. You’re going to miss one of the best chances in a couple of decades to snap up bargain prices — not only for gold, but also for silver and other precious metals … not only for bullion, but also for shares … not only with long-term, buy-and-hold approaches, but more importantly, for major trading opportunities.

As I said before and I’ll say again, that’s the wrong way to buy gold.

Martin: I want to wrap up our short interview series with some quick and basic questions.

 

Larry: Sure. Fire away.

Martin: Mike Larson has been just as right about interest rates as you’ve been right about gold. Most recently, he’s warned that, whether the Fed continues its program to buy $85 billion per month in bonds — or not — rates are going to surge.

And sure enough, we’ve experienced some of the most dramatic moves in interest rates in many years.

In fact, in percentage terms, Mike tells us that this week, we saw the biggest jump in 5-year Treasury yields in history.

Look at his chart on the daily percentage changes in the 5-year yield (up or down)! And look at that last spike at the extreme right side of the chart (where Mike has dropped in an arrow).

And look at one more critical thing: This chart goes all the way back to January 1962, more than a half century!

Even in the late 1970s, when T-bill rates were skyrocketing on their way to 16% … and even after the great debt crisis of 2008-2009, we have never seen rates spike this far, this fast (in percentage terms, that is).

Larry: I’ve been in total agreement with Mike on interest rates and have said so repeatedly.

Martin: OK. But the question is: How do you see this impacting gold?

Larry: My simple answer is that I’ve been expecting the rate spike to have an initial negative impact on gold … and it has done just that! But I’ve also been expecting it to be a precursor — an early-bird warning — to a massive surge in gold, and, I have every reason to believe it will be!

Martin: Surging to its all-time peak of the century of $800 per ounce and change?!

Larry: Precisely!

Martin: This week, Fed Chairman Bernanke hinted that if the U.S. economy continued to improve, he might reduce his money-printing bond-buying operations by the end of the year. This, in turn, throws some cold water on the money-printing-inflation argument that a lot of gold bugs have been pushing. What do you have to say about that?

Larry: As you know, I wasn’t among them. Quite to the contrary, I’ve said time and again that all those money-printing arguments were ill-conceived and poorly timed. That’s not what’s going to drive gold higher this year. It’s a series of other amazing global forces that are going to strike unexpectedly like a bat out of hell, catching nearly everyone by surprise. I’m talking about the collapse of Europe and the euro, the resulting rush of money into gold, the escalation of global conflicts, and an even bigger rush of money into gold, plus more.

Martin: Let’s say I want to buy mining shares — when you give us the signal, of course. Are you going to favor juniors or seniors?

Larry: A combination. I’d be very selective on juniors, though.

Martin: Why?

Larry: Because many have not adjusted to the increased costs of mining over the past few years. In many cases, the all-in cost is about $1,200 an ounce. Also, many juniors are still having trouble obtaining capital; credit is still tight.

Martin: Would you buy those concentrated in silver, gold or another precious metal? Or diversified mines?

Larry: All of the above — specialized and diversified — but with the greatest emphasis on gold. For many years, I’ve stressed that gold is generally more stable and has lower downside risk than the other metals.

Gold is generally more stable and has lower downside risk than the other metals.

Martin: It was obvious. But it also was obviously a good call.

Larry: That has not changed. It’s going to continue to be true going forward.

Martin: Is there any major country or region that you favor for the bulk of the operations of mining companies?

Larry: Yes. The U.S., Canada and Australia.

Martin: What do you think investors should avoid in mining shares?

Larry: Several things. But there are a couple of aspects I’d avoid in particular.

I don’t want mining companies that have more than roughly 50 cents of debt for every dollar of shareholder equity.

And I also don’t want miners that are big hedgers. Nor do I want miners that now believe gold is in a bear market and are starting to hedge again.

Hedging is a good practice when gold is in a long-term bear market. But it’s not in a bear market. I know how to hedge on my own and so do my readers who have been following my hedging instructions. I don’t need or want gold-mining companies for that. I want to stay away from those that are hedgers!

Martin: Let me shift to ETFs. When it comes to buying in big quantities, which ones are you going to be using?

Larry: There are many different metals ETFs, but with few exceptions, most of them do not have the kind of trading volume I like. I stick with the big ones.

Martin: Can you give us their symbols?

Larry: Sure. No surprises here. They are GLD and SLV. Plus, I also will use SGOL. I won’t waste your time giving you the full names and all the info on them. If you want that, just look ’em up online.

Martin: Are there any precious metals investments you would definitely cross off a future “buy” list?

Larry: Yes. Here’s my don’t-touch list:

• Illiquid ETFs with little trading volume.
• Miners with a lot of debt, a lot of hedging — as I said a moment ago — or just extremely illiquid.
• And commemorative coins, which, as we discussed earlier in this series, are almost invariably rip-offs.

But that still leaves a wide range of instruments: bullion (bought the right way), great mining companies, actively traded ETFs of all kinds, plus leveraged instruments I like to use, with the proper risk protections, of course.

And please don’t forget: Nothing I’ve said here today should leave you with the false impression that it’s time to back up the truck and buy any of these in large amounts today.

Martin: I think you’ve already made that abundantly clear in all of your writings and conferences. Thank you very much!

Larry: Don’t mention it. Have a great day!

Martin: You too! Bye.

 

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EDITOR’S PICKS The Truth About Inflation … by Larry Edelson The most frequently asked question I seem to get, no matter the time period, is “Larry, don’t you see hyperinflation for the U.S. in the years ahead?” Here’s Why the Fed’s Stimulus and Market Rally May Continue by Mike Burnick Stock-market volatility has spiked, bond-market selling is unprecedented, and investors have only one thing on their mind: When will the Federal Reserve scale back its $3.4 trillion stimulus program? Don’t Get Fooled Again — It’s Time to Dump Bonds Now by Mike Larson Mark June 19, 2013, down on your calendar. Because it will likely go down in history as the day the Federal Reserve’s four-year quantitative-easing program began its long, slow, painful death — and the day the sell-off in the $38 trillion U.S. bond market reached a massive tipping point.

THIS WEEK’S TOP STORIES This One Group of Bankers Can Help You Predict the Markets by Douglas Davenport If you’re like me, you’ve probably wondered why nothing seems to change in Washington, D.C., no matter who’s elected to Congress or the Oval Office. All You Need to Know About Today’s Federal Reserve Meeting by Bill Hall The Federal Reserve’s rate-setting meeting yesterday and today is, so far, the year’s most important investor event. The Wrong and Right Way to Buy Gold, Part II by Martin D. Weiss, Ph.D. Nearly 21 months ago, one of the world’s leading analysts and proponents of gold shocked the investment community with the announcement that the yellow metal was headed south.

 

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