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Long Gold, Long Short
by Richard Lancaster

Sometime in the first quarter of 2003 I hit the wall! I discovered that if I were to continue writing articles at the pace I'd set in the previous 12 months that I would, in all likelihood, be repeating myself consistently. So, I decided to stop writing and concentrate on other life issues - and let the long slow secular bear market unfold - as the bull market in gold also played itself out.

I think there were many individual issues that contributed to my decision to hang up my keyboard for a while, not least of which was the completely inexplicable behavior of the markets and the price of gold. Daily thrashing around on the explicability of it all seemed too much of a burden to bare - so it was off to the real world of working for a living, spending more time with the family, and generally getting other stuff done. Of course the distraction of war and the incessant drone of terrorist fear mongering also played in to the behavior of the markets and my perspective of them.

Since I stopped writing nothing has really changed (although now we control Iraqi oil reserves, the dollar has been allowed to drop, the markets have risen and gold has inched back from the large drop it made off nearly $390), so in order not to bore you - and me - with meaningless verbiage I will keep this short.

Here is what I have come to say (please bear in mind I am no financial adviser, analyst or pundit - just a guy with a desire to tell it as I see it):

I am Long Gold and Long Short.

By that I mean that I have taken a very long-term view of the gold market, I've purchased approximately 20 US and Canadian gold and silver stocks, mid-tier (Meridian, Glamis, Goldcorp) and exploration stocks (Wolfden, Nevsun, Wheaton. etc.), and I've kept 3 precious metals mutual fund positions (the likes of Tocqueville & Gabelli Gold). These have all served me well over the time I've invested in them. Periodically I check out the portfolio, do some trading and re-balance everything. I've had some huge wins and one howler - Vanderbilt Gold Corp (VAGO) - otherwise I'm generally in great shape.

I've also taken a long-term view of selling short the DOW, S&P and Nasdaq with the purchase of 3 mutual funds (USPIX, RYVNX and RYTPX) in the summer of '02 - these funds rise or fall twice what the general markets move in any given day. Needless to say since this enormous bear market rally begun I've been "losing my shorts" so to speak! But I'm holding the line on these positions. I cannot time the top of this rally - I suspect it could go as high as 10,000 although that would be incredible should it happen. The rally has brought much pain for me and my positions, at the beginning of this movement I looked at my position and suspected I was in for a rough ride - I paused with my finger on the trade trigger on my keyboard, and then determined to stick it out.

These short mutual funds are locked up inside retirement accounts that are limited in terms of the number of trading options I have. I'm also absolutely steadfast in my interpretation of the economy. We haven't begun to flush the enormous debt out of the system, to return stock prices to levels where they truly represent good value or to begin working our way out of this predicament through sound economic effort - good old Austrian style, you know…..the old-fashioned way.

The key data point I've held on to in relation to my short positions is that "the market always returns to its mean" over time. That puts the DOW somewhere south of 3,000 at some point in the not too distant future. The current bear market rally is nothing more that the last vestige of irrational exuberance being squeezed (ironically) out of the investing public's pocket by the very same Fed that warned us all in the past of such behavior!

So, the long and the short of it is this: Buy gold, some physical, some stocks and even precious metals mutual funds if that is the only option you have in your retirement funds. Then diversify a little by shorting the markets or individual stocks that represent the market. In the years ahead I see the dollar taking a long bath, gold and oil rising, and the markets finally capitulating. I can't tell you when, so place your bets and hold on to your shorts!!

Cheers Rich


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