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Alessio Rastani: What people refuse to learn from the gold crash

by LLB Editor
16th Apr 13 2:51 pm

Remember the trader who told the BBC that “Goldman Sachs rules the world”? This is his column

Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com)

Back in 2011 when gold reached its peak of $1900, I remember accidentally running into one of the UK’s “gurus” on gold.

I won’t mention his name to embarrass him, so let’s just call him Mr. G for now. Mr G was angry with me.

You see, only a few days before I had been on the BBC with my famous “Goldman Sachs Rules The World” comment, and Mr G wanted to know why I had not told people to buy gold.

In fact, Mr G was not the only person who has been upset with me about my silence on gold. I remember getting dozens of emails and letters from people saying, “Alessio for God’s sake! Tell people to get into gold before its too late!”.

The craziness does not end there. It gets worse.

In 2011, London was full of packed seminars with empty-headed “gurus” like Mr G preaching to people the gospel of gold.

These immoral “experts” were teaching honest and hard-working folks how gold at $1900 was the “safest investment” they could make. People were promised that soon the price of gold and silver was about to fly to the moon!

This month’s 15% drop in the price of gold to $1350 must have been quite an awakening for these people expecting an eternal “safe haven” for their money.

Where is your gold messiah now Mr G?

Don’t get me wrong. I don’t have a problem with gold as an investment. Far from it. I am a keen gold and gold stock investor myself.

However I do have a problem with people like Mr G who refuse to tell people the truth that even a “safe asset” like Gold can become expensive…and therefore risky to own.

Two months ago I warned in this column about the biggest mistake made by investors and why they are forced to repeat this mistake over and over again:

The fact that people will buy high and sell low, instead of doing the opposite.

Why do people make this mistake? Because they refuse to learn the simple truth that risk is strongly correlated to the price you pay for an asset.

In other words, when price rises, so does risk. When price falls, risk falls as well.

Unfortunately, most people have got this completely the other way around.

Most people think that when asset prices are falling the risks are high. So they get scared of buying. On the other hand, people only get greedy and confident about a market when prices are rising to higher levels. They think that the risks are lower if price is rising. This is true no matter what you invest in, whether it is stocks, gold, real estate and yes… even the bitcoin (god help us).

Take a look at this chart:

Stock risk cycle

As the above image shows, people’s inability to invest successfully has deep psychological roots. It is almost as though human beings are programmed to be terrible decision makers when it comes to investing. As people’s confidence and trust in a particular asset grows they become more greedy and want to buy it. Little do they realise that by that time, the asset has become expensive and is about to make a significant decline or correction.

This is why time and time again I have said that John D. Rockefeller (whether you love him or hate him) was right when he said: “The way to make money is to buy when blood is running in the streets”.

Only when an asset class becomes hated and unpopular, then it becomes a very profitable opportunity to buy.

The best time to buy a winter coat is in the summer. Not when it is prominently displayed on the shop windows at Harrods!

The best time to buy stocks (and gold) was at the 2009 lows after the market crash – not when the newspapers are screaming “bull market” on their front page headlines.

At some point gold will become so hated and unpopular that it will become a very profitable buying opportunity.

The bottom on gold has not yet been reached. At the time of writing, gold is currently trading at $1334. Given that May is usually a bad performing month for markets anyway, I would say we probably will not reach a bottom until mid-June.

People who are looking to use this decline in gold as a buy opportunity can look into buying physical gold (and silver) from a trusted source such as BullionVault.

Alessio Rastani is a stock and forex trader at www.leadingtrader.com

Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.

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