Thursday, April 1, 2010

Is Gold Ready For Another Bull Run?

Given the large amount of debt around the world, Moses Kim believes that gold prices are likely to significantly increase in the coming months. Given that the dollar has spiked, global debt continues to increase, and European unemployment is on an up trend, it is likely that the continuing global flight to safety will push gold prices up significantly as it depresses the values of paper assets. See the following post from Expected Returns.

I believe gold is going to rally considerably in the next 6-12 months as debt-related issues jolt countries throughout the world. Current gold prices present a buying opportunity, although this may not be clear to people who have fallen asleep tracking gold on a day to day basis. But remember: boredom and complacency are the seeds of major move- that's why so few profit when the train leaves the station.

While timing markets is incredibly hard, there are times when the probabilities of an advance (or decline) increase. For example, while everyone was insanely bullish on gold last December, including people who couldn't even spell gold a year ago, I was cautious and expecting a correction in gold. At the time, gold was technically way overbought, and sentiment was at extreme levels. It is at times like these that you have to control your emotions and start unloading positions.

In the current gold environment, I'm sure most people are having trouble adding to positions. But remember, George Soros had absolutely no problem adding to positions above $1,000 dollars. This should give you a sense of what you should be doing.

Gold Consolidation

It appears gold is basing at the $1,080-$1,100 level. We've been stuck in a pretty tight range for 4 months, and something will have to give, either to the upside or downside. Since governments throughout the world continue to mismanage their budgets and print the difference, the odds favor an upward thrust in gold. Keep in mind that the debt crisis is global and far from over. The fact that Eurozone unemployment is rising once again should give halt to any thoughts to the contrary.

The dollar has retraced about 50% of its intermediate term decline and is up against pretty stiff resistance. Over a longer term horizon, current dollar valuations present a pretty strong selling opportunity. Realized budget deficits continue to outpace budget projections, and with the new health care mandate set to weigh heavily on future deficits, there is little hope for the dollar in the long run.

The explosive gold rally in the 2nd half of 2009 forced people to start questioning their preconceived notions about gold. So many misconceptions about gold abound, including the utter nonsense that the price of gold price is driven by jewelry demand, that it doesn't surprise me that so few people have profited from this bull market. Most people are going to lose money in gold by buying near the absolute top- this is for sure.

Gold is perhaps the most misunderstood asset on planet earth. Americans who see only the dollar price of gold don't understand that we are witnessing a global flight to safety into gold, which is evidence of declining global confidence in governments, and by extension, paper assets.Watch for a collapse of confidence in paper assets globally to support a major move in gold. Look for rising long-term bong yields to signal the next major move in gold is near.

This article has been republished from Moses Kim's blog, Expected Returns.

1 comment:

Unknown said...

Egads!.... "long-term bong yields"