My golden years

By Bernard Mendelman, September 26th, 2012

 On Sept. 13, the U.S. Federal Reserve said it would buy $40 billion worth of mortgage-backed securities per month as part of a stimulus plan colloquially known as QE3, or a third round of quantitative easing. The announcement triggered a rally in the price of gold that hovered around $1,775 per troy ounce. That week-end the gold touts were targeting prices of $3,100 for gold -certainly a minimum of $2,300. Also that same weekend the newspapers were full of advertisers looking to buy gold coins, gold bars, gold jewels -any item made of gold-even the gold fillings in your teeth. In addition every ad exclaimed, “We pay immediate cash and more than our competitors.”  If they all believe there's never been a better time for me to be selling them gold, then perhaps there's never been a better time for me to be holding on to the little amount of gold items that I own.
The first time I ever bought a gold stock was when I was 18-years-old. I was apprenticing in a chartered accountant's office and while out on an audit the owner of the company took a liking to me and gave me a “hot” tip on a gold mining stock. At that time I had $1,000 saved up and I went and splurged it all on a 100 shares of this $10 stock. In those days you had to phone your broker to know how a stock was doing. It's not like today when you can get instant quotes on television, internet and cell phone screens. What I would do is each night before I arrived home I would stop at the corner store and buy the final edition of The Montreal Star that came out about five o'clock. It printed the closing stock market quotations. I always had to make sure it was the final edition because if the store still had copies of the early edition that came out a few hours prior they would put them on the top of the pile and try to sell them first.  If I happened to be down town during my lunch hour I would spend it at a brokerage firm with a store-front that was located across from the Mount Royal Hotel, on Peel Street. Nattily attired business men smoking expensive cigars would gather there to watch an employee post, with chalk, the latest prices from a ticker-tape onto a large blackboard. A month after I bought the gold stock the price doubled to $20. Smart guy that I thought I was I sold the stock. Six months later the stock was $80! I've been hooked on gold mining stocks ever since. Over the years I've had my share of winners and losers.
As long as the balance sheet fundamentals of central banks and nations remain in an apprehensive condition and fiat currencies continue to lose their value, people will turn to gold. Tightening gold supplies, inflation concerns, and asset diversification into precious metals by both investors and hedge funds will help drive gold prices sharply higher. With the world's current political unrest, terrorism and threat of war, the following countries have been hoarding massive amounts of gold; India, Netherlands, Switzerland, Japan, Russia, China, France, Italy, Germany and the United States. Right now, the only way big mining companies can gain control over more reserves is by buying up existing, operating gold mines. This of course is great for Canada's emerging gold mines. I'm sure there will come a day when the world's massive debt gets straightened out. Even wars and terrorism may get resolved. But until that happens we are in for tough times, and that's why many who have lost faith in paper currencies, have turned to gold.
If you buy gold stocks, a word of caution. Even as the price of gold rises, not all gold stocks will go up. A sage investor once told me. “A gold mine is just a hole in the ground, with a dream on top.”
riben@videotron.ca