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What should I do if I’ve never bought any gold?

*Dow Theory Letters, by Richard Russell, September 10, 2010

”Question — But what should I do if I’ve never bought any gold?

Answer — The primary bull market in gold is still intact.  Gold has run through its early first phase.  This is the phase where sophisticated value-oriented investors buy an item because they believe the item is drastically underpriced and totally neglected by most investors.

Gold is now in its second and longest phase.  This is the phase where the item slowly attracts the more sophisticated element.  Large investors and a few hedge and mutual funds come aboard in the second phase.  Retail investors who follow the large investors join the parade during the second phase. Gold is now in the latter stages of its second phase now.

Ironically, today and during recent years, the US government and the Fed have done the so-called ‘gold-bugs’ a tremendous favor.  The government and the Fed have consistently bad-mouthed gold, thereby helping to hold it back.  As a result, gold is still relatively cheap as I write.  Remember, gold hit a high of 850 in January 1980.  If adjusted for inflation alone, gold should be over $2,000 an ounce today.

The IRS has joined in the ‘down with gold’ game. Gold and gold funds and gold items are taxed as though gold is a ‘collective,’ not a currency.  So all profits in gold are taxed in the same way that income is taxed.

Why would the IRS bear down on gold investors?  Easy, because the IRS is part of the US government, and the US government doesn’t want anyone making a profit in gold or making a profit on the dollar’s decline.

When figured as a ratio of all the fiat money created since 1980, gold should be over $4,000 an ounce today.  By any number of statistical ratios, gold is still underpriced.  Somewhere ahead this gold bull market is going to catch fire.  At that juncture, we will be in the third speculative phase of the gold bull market.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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