What I Tell Myself When Gold Sells Off
Sep 1st, 2008 | By Jeff Clark | Category: Gold MarketPsychologists say decisions aren’t made simply on what you hear from others but also on what you hear in your own inner dialog. With investing, that can be the kiss of death if you let either fear or euphoria dominate the conversation. So what did you tell yourself this summer when gold plummeted 20% in 5 weeks and most gold stocks lost a third or more of their value? Did the dialog help you make a wise decision?
I’ll tell you what I told myself. When I saw a chart of gold’s mid-summer drop, it looked scary…
…then I told myself to take a longer look at gold’s history.
What I saw is that gold’s recent drop is a blip in the big picture. So I told myself, “Maybe you should relax a little.”
Then I thought about corrections in past gold bull markets. Compared to the historical record, does the recent sell-off look normal? Or is there something about it that suggests our gold bull market is over? Here’s what I found: past bull markets were interrupted by similar drops – and then they came roaring back.
And even within the current bull market, there have been other pullbacks similar to what we’ve just gone through. Gold dropped 21% in the summer of 2006 – but gained 45% by the end of 2007.
So I told myself, “Corrections, including large ones, are normal in bull markets. The sweet stuff is still ahead.”
But enough of charts. What we really want to know is, is the case for gold still intact, or have the fundamentals changed? And the answer, I believe, will give you some compelling things to say if the recent correction has left you arguing with yourself about buying gold.
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