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Why I Hope Gold Falls to $1,000

The commentary below is for the benefit of our readers from opinion makers and writers not associated with Euro Pacific. We do not guarantee the accuracy and completeness of third-party authored content. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific, or its CEO, Peter Schiff.
By: 
Jeff Clark, Senior Editor, Casey’s Gold & Resource Report
January 25, 2010
As a self-professed gold bug, why would I possibly want my favorite investment to fall in value? Have the long hours finally caught up with me?

Au contraire; my near-constant devotion to all things gold has only served to crystallize one of the things I really want out of this. Here’s a hint.

I had lunch with a reader at a recent conference, and while talking about one of my favorite subjects – gold stocks – I asked why he was invested so heavily in them. “Greed,” he said bluntly and with little hesitation. I appreciated the honesty.

Let’s be frank: I’m here to make money, and so are you. And that’s why I hope gold falls to $1,000 again.

Let’s say Bob has taken our advice and has been storing cash. I’ll use $1,000 as an example. If Bob buys Yamana Gold now, he’d get about 93 shares as I write (at $10.73 per share).

Now, let’s say gold drops to $1,000, about a 10% fall from here, and due to its leverage, AUY sells off by a 2-to-1 margin, meaning 20%. So with that same $1,000, Frank, who’s waited for the downturn, buys 116 shares at around $8.58. Thus, instead of owning 93 shares at $10.73, he owns 116 shares at $8.58.

When Frank sells, he doesn’t just make the difference between $8.58 and $10.73 (an extra 25%), he also makes 125% on the extra 23 shares he owns if Yamana doubles in a couple years, which I expect it to. So two years from now, Bob would have $2,000, but Frank would have $2,500 because he bought more shares and at a lower price. Frank makes 25% more than Bob on the same dollar investment simply by buying when gold and gold stocks fall in price.

Got $5,000 saved up? Multiply the profit by 5. And with larger amounts, you can see we’re talking serious money.

I don’t know if we’ll see $1,000 again or not, or if Yamana will fall that low, but I would point out that corrections in the gold price can range as high as 20% (2008 notwithstanding), so a further sell-off in price would not be out of the ordinary. A 20% correction from gold’s peak at $1,212.50 on December 2 would equal $970. That’s not necessarily a prediction, but it shows you that price is certainly possible.

Don’t like my wish? Remember, it’s called a bull market for a reason; it’s not a cow market or a puppy market. It’s going to try and buck you off. But a correction to $1,000 or even lower can give you the chance to buy more, cheaper. Don’t view sell-offs as a bad thing but rather as an opportunity.

Bring on $1,000!

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