The Markets That Cried Wolf

Washington is still dealing with the issues of the debt ceiling and no clear indication has been given as to what will be done to fund the government this fiscal year. I woke up this morning and was waiting for House Speaker John Boehner to come on the TV and give us some news to gain a footing with, but he was extremely vague and hard hardly a direction at all. The only thing I heard was statements about how well intentioned everyone was and for everyone to rest at ease knowing they have the well-being of the American people at heart. The government is actually only two days away from the deadline and the stock market hardly seems to care. After crying wolf so many times regarding the severity of the debt ceiling, the markets just assume that a deal will be made and life will go on as usual. 

Interest rates on U.S. Treasury bills fell today on reduced jitters over a possible U.S. default as there were hints of a fiscal agreement that would reopen the government after it was partially shut for the first time in 17 years. Stocks are holding up on anticipating an agreement to be made as well.

Whatever… After a while, you need to look at the whole situation and invest in the long-term. Make the right choices now. Let’s get on to something that matters and can affect your future now.

Gold Trading At Severe Discounts

It’s been a very strange thing to see what has been happening in the markets with gold. Gold has acted contrary to what gold typically does in times of crisis and trouble. All the news of government shutdown and debt crisis should be sending gold through the roof.

But many traders are still left wondering, “If it’s such a crisis, why isn’t gold doing better?” The last time we had this scenario, in December 1995, gold moved higher. But this time, gold tanked. Seems weird, right? 

A lot of what we have seen in recent times is money moving from safe haven assets such as gold and the dollar, into risk assets such as stocks. This has taken demand/sentiment towards gold and directed it elsewhere.

People have disregarded gold and are now treating it like an old lady that has lost her mind. People don’t pay attention to it and are certainly avoiding it in terms of investment potential.

Slow moving trends take years in many cases to reverse themselves. Gold has now been in a downtrend since 2011. It has been in a bear market over two years with gold trading lower than it has been in years. I believe we will see a reversal in gold in the very near future.

Trends take time to reverse for instance, Ford during the 1990s made a name for itself by producing cars that broke down and gave people many problems throughout the life of the car. Going into 2000, Ford really started making some changes and adding quality into their products. It took essentially another 5-8 years for people to recognize their quality because people needed to purchase the new cars and have a positive experience with them before they told their friends and others started to change their tune on this car manufacturer. Now Ford is generally highly regarded among consumers. 

A similar story occurred in the real estate market. The boom in housing was a trend that people bought into for a number of years which eventually got exuberant around 2005/2006, and which ultimately crashed. The bearish sentiment on the housing market did not really start to turn around and build the support of the masses until 2012 and 2013 where home prices are starting to see 20-30% price appreciation. People are having more confidence again in the real estate market.

The Markets That Cried Wolf……and Gold

Stocks have done relatively well over the last few years. The case could be made that prices need to stabilize in the short-term for stocks to continue strong into new highs and beyond. Gold on the other hand, is trading significantly lower than where it could easily be in the next 2-5 years.

News really is not currently trending hot on gold and silver, but the trend will eventually change and it will be ‘cool’ once again. The only way to get the best prices on gold is to purchase when it has been oversold. Gold is one of those things that you want to purchase on the dips. Because of over-the-top pessimism that has hit the gold markets, it is going to take some guts to go against the grain and purchase something while it is being hated. Many value opportunities can be found when applying this very principle.

Gold going back to 1,500-1,800 over the next 2-5 years is very likely and can be a way to make an easy 20-50% on your money. The trend will change and you will feel like a genius for being in front of the trend.

To Rational Investing,

Kenneth Ameduri
Chief Editor at

Kenneth Ameduri