Doug Groh: What's Old Is New Again in Gold

The Gold Report: Gold dipped from about $140 per ounce in the bull market of January 1976 to below $105/oz. in September of that year. Ultimately, it proved only a pullback on the way to gold's peak of $850/oz. in 1980. Are we seeing a similar pattern now, or is this correction simply much ado about nothing?

Doug Groh: It's hard to say if this is a similar pattern. The market conditions are different than they were 35 years ago. However, cycles can be somewhat repetitive. I think the more important questions are: What does this correction mean and how long will it take?

Looking back at 2010, the gold market did very well with a nearly 30% rise in price. It's normal to have some type of correction after such an upward surge. Whether the market will experience a 25% correction like back in the late 1970s is hard to tell. But it is not out of the realm of possibility that gold could consolidate at levels seen during 2010 to what was the year's annual average of about $1,225/oz. before it marches to a higher level.

A correction is a healthy thing because it can shake out the weak players, traders and undedicated investors. It solidifies a base.

TGR: Has the correction led to any changes in the way Tocqueville is managing its gold fund?

DG: It hasn't motivated any immediate changes. However, we would like to see how this pullback plays out. It appears that we may be through most of it. At the end of last year, we were a little bit more cautious about investing new funds into gold equities. We felt that some of the gold equities were getting overpriced. We were accumulating cash and taking the opportunity to reposition ourselves for when a correction would come along. The market is going through profit taking from last year and a value-seeking phase. Now we're more interested in some of the companies that we had been looking at last year, but were waiting for better valuations. That is still playing out. (more)