The Best Mistake You'll Ever Make
By Jeff Clark, BIG GOLD
The following conversation took place between a friend's son and I; he's a bright but relatively young investor. He had purchased some gold based on some things I'd told his father. Shortly afterward, the price dropped hard. As you'll see, he was not very happy with my advice and said so in an email to me. So I called him...

I: Sounds like you're upset.

Friend: Yeah, that's putting it mildly. What the hell am I supposed to do now?

I: Because the gold price has dropped?

Friend: Yes! It's down 15% in a month! I thought you said this was going to be a good investment.

I: It is. And it will be. You might even consider buying more here if you have the funds.

Friend: I have some other money, but why would I put it in gold? It's losing money.

I: Because it's on sale. Because it's cheaper now than when you bought it. And especially because none of the reasons for buying it have gone away.

Friend: That doesn't mean it's going to go back up.

I: As I told your dad, there are no guarantees, but I think it will have to go higher. Either way, it will hold its purchasing power over time. We're holding it as an alternate currency, a more sound form of money that can't be debased.

Friend: Yeah, well, my money just got debased, big time. It needs to go up 20% for me just to get back to even.

I: Five years from now your dollars will have lost at least 10% of their value, based just on current trends. There's a good chance it will lose more than that. And gold will probably rise more than 10% a year. At some point it''s likely to go into a bubble.

Friend: [silence.]

I: Look, I know you're upset, but I'd hate to see you bail. This is one of the best investments we can make this decade.

Friend: [relenting a little bit]: You really believe that.

I: I can't promise you anything, but yes, I do.

Friend: And that's because you think inflation is coming.

I: It's for a lot of reasons, and that's one of them. Inflation is virtually baked in the cake; the dollar's long-term problems will be impractical to resolve; and the global economy is on high alert. This is exactly the kind of circumstances gold is for.

Friend: Then why is it falling?

I: Institutions need cash and liquidity, and gold offers a bid. Besides, nothing goes up in a straight line, and gold had just run up 35%. It was time for a break.

Friend: So this big drop really doesn't worry you.

I: It doesn't. I'm buying. In fact, I'll prove it to you - send me your gold and I'll buy it from you.

Friend: [Silence.]

I: I know it doesn't feel good right now, and it may take some time for it to make another new high, but gold is too important not to own here. It's a long-term trade, so plan on holding it for a while. In fact, if it helps, just forget about the fact that you own it - go do something fun and have a beer at the pub.

Friend: [a little chuckle].

I: I don't think you made a mistake buying at the price you did, in spite of it being lower now. Odds are high you'll be happy in a few years.

Friend: [pause] All right...

I'm glad my son's friend decided to hold on, because that conversation took place in June, 2006. He'd bought gold at around $700 and watched a month later as the price fell to as low as $567.

Gold ended up declining a total of 21% in just five weeks before bottoming, after a run-up of 35% (sound familiar?). And yes, it took over a year before it hit a new high.

Yet my son's friend - now older and wiser - wishes he could go back in time and make the same mistake again and buy gold at $700. His investment is sitting on more than a double, in spite of buying at a temporary peak.

I think that a few years from now we'll all wish we could go "back in time" and buy gold at $1,700. And I believe you'll still feel that way if gold falls to $1,500, as some writers are projecting.