Gold: Trade of the Decade

Gold at $2,700...or $3,000 per ounce...as the bear market in stocks wears on...

EIGHT YEARS AGO we suggested you sell stocks and Buy Gold, writes Bill Bonner of The Daily Reckoning.

   The bull market on Wall Street was over, we thought. A bull market in Gold was just beginning.

   And as far as we can tell, we were right.

   The S&P is down about 20% from its high...which puts US stocks just below where they were in 2000. But adjusted for inflation, the loss has been spectacular.

   Remember, oil has gone from around $10 a barrel to around $140 a barrel. Everything else has gone up too. Even by official CPI numbers, the year 2000 buck is worth only about 80 cents. And the Dollar against the euro is down about 40%.

   Real bear markets typically last 10-15 years. This one has another few years to go. These should be the most interesting ones. Commentators are already looking for a bottom in the stock market. They may have to wait a long time.

   An ounce of gold would buy the whole Dow Jones Industrial Index in 1926...and again in the 1930s...and once again in 1980. If Gold stays where it is, the Dow would have to drop below 1,000 for the Gold/Dow Ratio to return to one. More likely, the Dow will drop and gold will rise to meet it.

   In 1999, gold bottomed out at around $260 an ounce. Since then it is up nearly 5 times. The US money supply, however, has gone up 11 times. So our guess is that there's plenty of upside left for the stuff they make dental fillings out of.

   If it were to equal the increase in M3, the broad measure of US money supply, its price could rise to $2,700 or so.

   This is all guesswork, of course. But the Trade of the Decade still looks good to us. Gold and the Dow will probably come together somewhere north of 3,000 we believe.