Major Vindication for Gold's Greatest Guru
Aug 4th 2011 9:16AM
Updated Aug 4th 2011 9:18AM
He has done it again! The man who earned the nickname "Mr. Gold" after precisely calling the top of gold's previous bull market back in 1980, has just accomplished a feat that easily secures his legacy as the greatest precious-metals investor of our time.
Back in 2001, just as gold was recording a multidecade low beneath $300 per ounce, and the ancient monetary metal had been thoroughly outcast from the consciousness of financial markets, Jim Sinclair made an incredibly bold prediction. He forecast a powerful bull market for gold that would bring the price to at least $1,650 per ounce, implying about a six-fold increase from its price at the time.
In 2003, he launched Jim Sinclair's MineSet, a website to host his daily commentary on gold and the key developments underpinning this ongoing secular bull market. Over time, the site developed a broad following among investors with exposure to gold. While his role as chairman of Tanzanian Royalty Exploration (ASE: TRX) remained his top priority, his persistent supply of insight into the gold market helped to steady the hands of gold investors as they confronted bouts of excruciating volatility and incessant calls for a collapse in gold prices.
I know that my own journey of investment in precious metals owes a portion of its success thus far to Sinclair's unflappable vision of $1,650 gold as a foregone conclusion based upon a fully vindicated perspective of the macroeconomic landscape. Now, that's not to say I adopted his perspectives on gold directly like an unquestioning disciple. To the contrary, I soon became frustrated by his insistence upon attaching specific timelines to certain forecasts; most notably when he became convinced gold would reach his $1,650 target on or before Jan. 14, 2011. I shared his confidence in the target price -- even extending the mark to $2,000 for my own conservative long-term outlook -- but I remained circumspect about the precise timing.
On the other hand, I believe his broader insights into financial markets have already proved remarkably astute. Those contributions are epitomized by golden nuggets like his 12-stage formula for higher gold prices issued in 2006, or this poignant radio appearance in 2009.
The making of a gold legend
Gold's detractors like to point to the metal's decline from the 1980 peak to suggest that gold investors are likely to be left holding the bag when the metal carves a supposedly unforeseeable about-face. But try telling that to Sinclair, who ran a brokerage service at the time called the Sinclair Group of Companies, and knew precisely the implications of then-Fed Chairman Paul Volcker's aggressive campaign to raise interest rates to 20%. Sinclair sold 900,000 ounces of gold for an average price of $810 in early 1980, and walked away from the bull market with his winnings in hand.
From 1981 to 1984, Sinclair advised Hunt Oil and the Hunt family as they sought to liquidate their massive silver holdings that had played a role in silver's incredible (first) spike to $50 per ounce. Later, he served as president of the commodity-focused Sinclair Global Clearing, and also president of a derivatives firm dealing in commodities and currencies. Perhaps the latter position contributed to his keen understanding of the dangers inherent in a heavily leveraged global market for derivatives, which forms a key foundation of his rather unsettling long-term macroeconomic forecast. But please, don't shoot the messenger.
The golden perspective on the future of gold
Now that history will record Sinclair's phenomenal call for $1,650 gold, issued a full decade in advance, his wildly successful participation in two consecutive bull markets for gold easily secures his legacy as gold's greatest living guru. Whatever happens from here, no one can take away that record of achievement. But what has the guy whose target has now been met been saying about the outlook for gold beyond the $1,650 mark?
Earlier this year, Sinclair quipped: "I think that my price target of $1,650 per ounce gold is going to be so low it will be considered silly." Just a couple of months ago, with gold retreating to about $1,500 per ounce, Sinclair predicted: "The drop at this time will in retrospect be seen as the foundation for gold trading not at $1,650, but rather at $5,000 an ounce."
Just this week, on the eve of his price-target's fulfillment, he offered: "Gold between $1,600 and $1,764 is deciding its new and elevated role in international finance." Indeed, after an entire decade of gains for the oft-maligned metal and the routinely ridiculed community of gold investors, the ancient currency is finally reasserting its rightful place on the world's financial stage. So far in 2011, emerging-market central banks have already added $10 billion of gold collectively to their foreign exchange reserves .
Based in part upon the valuable insights into the gold market that I have gleaned over the years from Sinclair, I remain confident that $2,000 gold is likewise a foregone conclusion. Some of my colleagues may consider it the height of arrogance to project a forward price target for gold, adding to a veritable chorus of disparaging sentiments that I have encountered over the years as a consequence of my bullish stance on gold.
Undeterred, I continue to recommend that my readers allocate some portion of their investment portfolios to gold and silver through carefully selected equities. The Central Fund of Canada (ASE: CEF) remains the insiders' choice for one-stop bullion exposure to both gold and silver. Speaking of silver, even though Silver Wheaton (NYS: SLW) has already advanced more than 1,400% since I pleaded with Fools to take notice at $2.51 per share in 2008, I still expect the stock to reach $100 before the precious-metals bull market loses steam. Even at these record-high prices, low-cost gold producers Goldcorp (NYS: GG) and Yamana Gold (NYS: AUY) continue to trade at substantial discounts to my assessments of fair value. I believe AuRico Gold (NYS: AUQ) has its golden ducks in a row, and Rubicon Minerals (ASE: RBY) recently scored a new lease on life with a transformational strategic partnership.
The process of selecting the best precious-metals vehicles is a crucial one, but not nearly as crucial as the decision to seek some exposure in the first place. I believe the greatest risk relating to gold that investors currently face, is the risk of missing out on the powerful upside moves still to come. With that final point, I trust Jim Sinclair would wholeheartedly agree.
At the time this article was published Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of AuRico Gold, Central Fund of Canada, Goldcorp, Rubicon Minerals, Silver Wheaton, and Yamana Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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