Gold, I Told You So

Today gold broke the $600 barrier. I am sure that we will hear the usual suspects come out of the woodwork downplaying the move, saying that gold is overbought, it is a relic, it is time for a correction. They will try to talk down the price of gold. We may even see some of the large banks selling gold in an effort to bring the price down.

All of this may work…for a while, but the bottom line is that gold is nowhere near done with the up move. How do I know? The U.S. government continues to create more and more dollars, diluting the dollar's buying power.

The first time I mentioned owning precious metals here was back on April 5, 2005, over a year ago. At that time gold was selling for around $427 per ounce and silver was selling for $6.95 per ounce.

The first time I specifically mentioned owning gold in any of a number of ways was on October 25, 2005. Back in October, gold was selling for about $470 per ounce.

Did you buy any? Most people did not. It is almost impossible to buy gold through your 401K plan, unless you have a more progressive plan that offers a precious metals fund. Most folks do not want to be bothered with actually buying gold and then trying to figure out a way to store it. Of course those same folks have no problem buying a new SUV and figuring out where they are going to store it. Today gold is selling for $606 per ounce and silver for better than $13 per ounce.

Let's use the SUV example and do a simple comparison. Let's say you bought a brand new SUV in April of last year and it cost you $45,000. Let's say you paid cash and have no payments. I know that for 99% of the population that is impossible as most of us have absolutely no savings, but for the sake of comparison let's say you paid cash.

Today, that same SUV is worth maybe $36,000 at the most and probably less with gas on the rise again. Had you purchased gold instead where you would be today?

Gold was at $427 an ounce in April so you could have purchased about 105 ounces. I am not going to consider any kind of handling charges you might have incurred because you probably paid sales tax and licensing on your new SUV well in excess of the purchase price.

Today as I write this your 105 ounces of gold is worth about $63,630. Your gold would be worth almost twice as much as your SUV in just one year. Now I know you what you're thinking, "How do I drive gold?" True, while you cannot drive gold, you could sell part of your gold holdings, purchase a very nice two-year-old SUV, and still have your original $45,000 left invested in gold and growing.

The fact is if gold just gets back to its original high of $850 an ounce, your $45,000 will once again grow to over $63,000. If gold goes higher as I believe it will, well, the sky is the limit isn't it?

Do not think that just because gold has already gone up in price by 42% over the past year that it is too late. Grab some today either by purchasing it outright, buying the gold ETF (GLD), or buying unhedged gold stocks.