Is now a good time to buy gold?

The standard post by "Dogs of War" that gold is a horrible investment. True, gold doesn't pay dividends or interest, but it is a store of wealth, it preserves your buying power.

Dogs of war says that in the last 80 year gold has only returned 4% a year. What he fails to tell you is that up until 1971, gold was fixed at $35/oz. Which means that prices were intentionally kept at at that level. Unlike equities that move up and down with buying and selling pressure. If equities were fixed at a specific price, then they would only be returning 4% also. That's a poor argument.

People also forget that gold just came off of a 20 year bear market. At the stock market bottom in 1982, the news media was trumpeting that stocks were dead and a horrible investment. That's because in 1982, the stock market was just coming off of a 17 year bear market. All markets go through cycles. For example; from 1990 to 2000 the Dow went from about 2350 to 11,700, a return of around 398%, yet gold went from $420 to $260, a loss of around -38%. So based on that, the place to have been was in equities. And people will throw that at you as that gold is a horrible investment, that it's no good.

But, let's take a look at 1971 to 1980. From 1971 to 1980, the Dow went from 900 to 772 (actually in 1965 the Dow was around 1,000) so the Dow saw a loss of about -14%, yet from 1971 to 1980 gold went from $35 per ounce to $850 per ounce, a gain of of 2,328%. During that time gold was the place to be and not equities.

Look at where we are now. The Dow at the end of trading yesterday was just slightly under -1% loss from it's 2000 high. Yet, gold is trading at about $580 per ounce right now and is up 123% from it's 2000 price. So, based on that data, which sector is currently underperforming, gold or equities?

Also, remember what I said about market cycles? The long term cycle in equities is about 18 years and in precious metals, about 20 years. The bear in precious metals ran for about 22 years from 1980 to 2002. The 18 year bull in equities ran from 1982 to 2000. Gold just finished a 20+ year bear market as is only 4 years into it's new bull cycle. Adjusted for inflation, gold should be trading around $2,000 per ounce (which is where several experts believe it will trade before it's cycle completes). Equities completed is 18 year bull cycle in 2000 and is only 6 years into it's long term bear cycle and as of the end of tradings yesterday, the Dow was 1% below it's all time high.

Now, which do you feel is a better investment; a sector that just recently completed it's long term bull cycle and is 1% below it's all time high of 11,722.98 or a sector that just recently completed it's long term bear cycle and is 31% below it's all time high? Remember, based on inflation adjusted prices, golds high compared to it's 1980 high of $850/oz. should be adjusted to $2,000 per oz. So at a current price of $580, gold is trading 71% below it inflation adjusted all time high. So, which do you think is a better investment.

And remember this, gold is a barometer of misery and does well during bad times. When gold shot up to $700/oz., gold was sending us a clear message that something not good is coming down the pike. Yes, gold did rise too quickly and needed to correct, which it did. But, let's get serious, a 4 year bull run and it's over? When long term cycles in precious metals normally last 20+ years? This bull in gold has a long way to go and a long time to run. Gold at $580/oz. is cheap. Those who shun gold are going to be kicking themselves when it hits $2000/oz. And when it's all said and done, look for the Dow to be trading in the 3,000 range and possibly as low as the 1,000 range.