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« Gold: Symmetrical Triangle Formation | Main | Yamana Gold: Bought Again »
Thursday
Dec132007

Gold: Just Simmering and Ready for Take-Off!

Having outperformed most other asset classes over the last few years, gold eyes another hurdle, simmering against a back cloth of illusionary figures.

Gold Outperforms

First up is the once trumpeted housing market, driven by unrealistic expectation and fuelled by lending organisations with less scruples than a river boat card shark. The old adage, “As Safe As Houses” has now been replaced by a tarnished repossession sign called Bank Foreclosure. The printing presses produced an abundance of money to dangle before the dim, stupid, supercilious masses who mistakenly thought the good life was theirs for the taking. An effortless process where you determine the outcome...Opps! Forgot about all those payments that must be made every month or its repossession time. To avoid repossession we throw more money at the large lenders and, in the words of David Bowie, we are “putting fire out with gasoline”!

So as the print presses roll, currencies suffer from dilution. The US Dollar being the most glaring example as its purchasing power weakens on a daily basis. This USD chart shows the once mighty currency in a downward spiral, much like a boxer who is losing on points, bleeding from the nose with both eyes closing as the bruising mounts and the battering continues.
USD is Dying

We recently predicted a bear rally in the USD, a rally with no substance that would be short lived and it was. The USD has struggled upwards for a very short period as you can see and did manage to take the froth off rising gold prices. However those holding this paper nothing cashed in and appeared to have stopped this bear rally in its infancy.

Moving over to the opposite corner, gold observes its breathless, weakening opposition. Is it that time for another big push, a blistering combination that will take gold prices past its all time nominal high at $850? Well gold has already outperformed many other asset classes over the past few years and it is gaining in strength and popularity by the day. The combination of blows will include a U turn by central banks who will soon stop selling their gold reserves and will begin to acquire gold bullion. Exploding energy prices and rampant inflation, along with many nations total distrust of their politicians, means that paper currencies will be savaged.

A flight to safety will then follow and gold is the only hiding place. Savy investors are already in position, other investors will switch to gold, followed by the general public who will mortgage the cat to buy gold when the mania sets in. However they are the penultimate investors as the last seat is reserved for our Bank of England, who managed to sell at the very bottom and will no doubt be buyers at the very top.

How soon will this happen? Well we believe that we are within touching distance of golds move to and through $850 and this will probably go through this milestone during the next month. This event will generate significant media coverage which in turn will attract new blood to this thinly traded market, catapulting gold to over $1000 in 2008. Given a few years we see no reason why gold prices could not be over $3000 per ounce.

So you need to ask yourself two questions:

1.If you believe that gold is going to rocket are you in position right now? Do not be the one who says afterwards that you thought gold would rocket but you didn't do anything about it.

2.What is your exit strategy? Remember that anyone can buy gold and gold stocks, however it is those who have an exit strategy and the discipline to execute it that are the real winners. You may decide to cash in when gold hits a certain number or when the HUI reaches a certain level or a number of circumstances that conspire to indicate that to you that the gold rush is over.

We will cover the subject of exit strategies in more detail in forth coming articles but do start giving it some thought. There is nothing worse than going all the way up and all the way down again, gaining sweet nothing.

In the meantime enjoy the ride and remember you can stay updated on the gold market and informed on which gold stocks we are buying by subscribing to The Gold Prices Newsletter completely FREE of charge. Simply click here and enter you email to subscribe.

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Reader Comments (1)

"...the dim, stupid, supercilious masses ..." !!!
How supercilious you must be to write something like that.
A dose of humility would make your posts more palatable.

Also, I don't think they are putting fire out with gasoline - not yet anyway. In the US they are only bailing out borrowers who can't afford their repayments and whose loan is 97% or more of the value of their home. A great reward to the big risk takers/fraudsters. Morality has been inverted and this is a great incentive for everyone else to act like a crook from now on.

They will have to go further than that to save the US housing market and if it keeps going down then consumer confidence goes down and the US economy slows and world growth slows. There will need to be big inflation to compensate for all that.

December 14, 2007 | Unregistered CommenterS. J. Illingworth

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