On 2nd November 2007 we mentioned that the US Dollar could put in a Bear Rally which could take the froth off gold prices, this bear rally is now in progress as we can see from the above chart.
The USD has turned up and may move a little higher having a knock on effect on gold. However we do not expect this rally to last much longer. The US Dollar is not the only player to have an effect on gold, the price of oil also plays its part having recently flirted with $100/barrel it has come off its highs. The raises the possibility of reduced energy costs and reduced inflation which is perceived as a negative for gold.
However the sub prime housing market along with the shadow of another credit crunch remains a priority for the Federal Reserve and they will in our humble opinion sacrifice the the US Dollar in order to stave off a recession. We expect gold to resume its path northwards but not in a straight line on a one way ticket to the stars, there will be pull backs such as one we are going through now. We do not expect our strategy of trying to trade on the highs and lows to suit everyone but it suits us. A short while ago we decided to take some money of the table and we sold half of our holdings in some of our stocks which appeared to be overbought such as Agnico Eagle. We sold Agnico Eagle for $48.78 and on Friday it closed at $48.12. The challenge for us is once again to find a suitable re-entry point for the cash that was side lined. We do hold and will continue to hold our core position in gold stocks regardless of what we perceive as short term trading opportunities. We enjoy the trading side of investment and believe that we can increase our holdings by taking profits during overbought periods and re-investing during oversold periods.
The gold bugs index as defined by the HUI has now retraced its steps back towards the 400 level suggesting that we are close to a buying opportunity however we will try and be patient for a little longer with the view that we can spot the turn around and move accordingly. As soon as we believe that the 'moment' has arrived to re-enter this market with our 'opportunity' cash we will post immediately.
If you are an investor for the long term and have bought and you are holding then ignore these minor ups and downs as the trend for gold is upwards so your investments should increase and reward you handsomely given time.
After a rally from $640 to $840 gold is taking a well earned breather. Also note that the technical indicators are no longer on the ceiling and are heading south.
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