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This is a guest post by Jeff Clark - Senior Editor, Casey's Gold & Resource Report:

The gold price has been hitting ever-new records over the past couple weeks, now closing in on the $1,300 mark. Some gold followers are saying this is extremely bullish for the near-term price since it broke so decisively through its June 28th high of $1,261. If they're right, how high might this particular surge go?

While the endgame for gold is far off in my opinion, it's worth looking at short-term surges, especially if you're trying to determine to buy at a particular level. Plus, it's just darn fun.

I looked at all major surges in the gold price since 2001. What constituted a "surge," in my opinion? Any large jump or uptrend that's clearly visible on an annual chart. So instead of looking at yearly gains or seasonal tendencies, I simply measured the percent gain of all big upswings that were the most obvious, regardless of when they occurred.

I put the findings to a chart.

major moves in gold since 2001 Sep 2010

You can see there haven't been that many large price advances, about one annually until last year. You'll also notice the biggest "surge" this year is comparatively small. In fact, you have to go back to mid-2001 to find one that didn't advance at least 20%. Meaning, we may very well be in for a bigger surge yet this year.

The average of all surges in the gold price since 2001 is 23.5%. If we hit the average, gold would spike to $1,428 in the current run-up. Note that I measured from the bottom of the surges, not the breakout point; the bottom I used in our case was $1,157 on July 28.

If our current surge were to match the 35.5% biggie, gold would hit $1,567. A 20.8% advance (the smallest of those greater than 20%) would take it to $1,397. With these numbers, Bud Conrad's call for $1,350 gold by year-end would be met and surpassed.

The only caveat I'd point out is that we logged three surges last year, the only time that occurred in the current bull market. On that basis, it's certainly possible we could be due for a breather this year and have thus seen our biggest advance. But given the current global economic and monetary circumstances, I wouldn't place a bet on that. A survey of 29 analysts by Bloomberg a couple weeks ago reported they see gold averaging $1,500 in 2011 – and most analysts tend to make conservative projections.

Note that there were always small pullbacks in the time periods I looked at; it was never a straight line. So the recent minor drawdown was typical of what occurred during these surges. Also, there were always corrections or at least periods of consolidation after the surge and before the next big upswing.

Regardless of what gold does over the next few months, I think 20%+ surges will continue throughout this bull market, with the occasional 30% punch. And a doubling of the gold price in a matter of months is also likely in our future, a sure sign of the Mania phase. Gold surged 128.5% from October 8, 1979, to January 21, 1980. A similar vault today would have the price jumping from, say, $2,400, to $5,484 in less than four months. Yes, I think that's entirely possible and perhaps probable.

How high will gold ultimately go? I look at it this way. The sovereign debt crisis in Europe isn't over. The sovereign debt crisis in the U.S. hasn't started. We will almost certainly see more quantitative easing (i.e., money printing). We have artificially low interest rates. The U.S. dollar is basically at the same level it was two years ago. We have no official inflation and certainly no big inflation. Less than 5% of U.S. citizens own any form of gold. Central banks are widely expected to be net buyers of gold again this year. Investment demand for gold is still only 32% of all uses of gold, a far cry from the 54% level reached in 1979. I could go on, but you get the idea.

The only way you can benefit from these surges is to be long gold. If you haven't been a part of one, I guarantee you it's a lot of fun. Gold is more important than that, of course; it's your personal safe-haven asset. Buy on pullbacks, slowly increasing your holdings so that what you own makes a difference in your portfolio, both for asset protection and profit potential.

And then, hang on.

The most profitable way to take advantage of a surge in gold is to own gold stocks. But not all precious metal equities equally benefit from gold's advances. To own the best producers in the gold industry, try a risk-free trial of Casey's Gold & Resource Report…it’s only $39 a year. Click here for more.

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No sooner do I write a bullish commentary about the repeated cup and handle formation in gold in mid-June, than the yellow metal decided to walk right back from completing the most recent example of that pattern. It is a good thing that I'm used to the market liberally heaping such indignities on me.

Since mid-June, the price of gold has drooped from $1256 to $1161 or -7.6%. Within the context of gold, which is a rather volatile commodity, that magnitude is relatively small. More importantly, price has still held the short term rising trend line:

gold uptrend Aug 2010

Citing several technical characteristics CitiFX Technicals believes that gold still has chance to challenge the old highs and reach new ones:

  • Remains in the rising channel with good support coming in at $1,161 where horizontal support converges with the channel base
  • Overall we expect further gains towards the $1,340 reverse head and shoulders target
  • A weekly close below $1,161 would suggest a deeper correction down in the short term

As well, the bullish percent chart of the gold sector is at 45%. This is neutral, especially if we compare it to the February 2010 correction when it fell to 20%. That was the lowest bullish percent level for the year.

Massive Exodus From Rydex Gold Fund
Perhaps most interesting of all is that last week we saw a huge drop in the assets of the Rydex Precious Metals Fund; from Wednesday's $171 million to Thursday's $102 million.
Continue reading 'Technicals & Sentiment Suggest Gold’s Correction Over'

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This is a guest post by Jeff Clark, Senior Editor, Casey’s Gold & Resource Report:

It’s true that GLD’s assets just passed the $50 billion mark, and that it’s the second largest U.S. ETF. Yes, mints had difficulty filling orders when the Greek crisis broke. And yes, the gold price is up nine years in a row.

But those who look at statistics like these are missing the other side of the equation. I think it’s less about how much money is already invested in gold and more about what’s available to invest. After all, one could be impressed that China, for example, invested $14.6 billion in gold over the past few years – until you realize they have $2.45 trillion sitting in reserves.

So, how much is invested in gold, and how much is available?

gold etf vs money market assets Jul 2010

According to hedge fund Paulson & Co, if you added up all the money invested in gold ETFs, it would total $78.3 billion (at $1,200 gold). The amount of money currently sitting in U.S. money market funds, on the other hand, comes to $2.849 trillion.

In other words, all the money invested in gold ETFs represents just 2.7% of what is sitting in cash. Put another way, if just 5% of available money market funds ($142.4 billion) were to move into the gold ETFs, it would almost triple the current value.

But what if it’s 10%? And what if Doug Casey’s call for a modern-day gold rush comes to pass?

Those who claim the gold market is crowded will also point to Paulson’s extraordinary high percentage of funds sitting in yellow metal investments. Yes, he’s got a $3.4 billion stake in GLD – but the critics didn’t look under the hood. Most of those holdings are from the fund’s employees (including John himself), not outside investors. Not exactly an overheated trade.

To some, the amount of money invested in gold may “feel” high, but it’s a relative pittance compared to what’s sitting idly on the sidelines, waiting for a reason to move and a place to go. And when you consider that the vast majority of U.S. citizens don’t own any form of gold, this is a market that is the opposite of crowded. There is a lot of money that could hit our sector.

And it’s not just precious metal funds. I interviewed Andy Schectman of bullion dealer Miles Franklin, and Kevin Brekke, our Switzerland-based editor, told me it was the most informative interview we’ve published this year. Why? Because based on what Andy sees week after week regarding supply, he’s come to the conclusion that we’ll see a serious drought of bullion when the average citizen begins to buy gold. Meaning, if you wait to buy until everyone else does, you may find yourself out of luck. And the data I present this month backs up that claim; in fact, you may be surprised at some of the findings.

If you’re not a subscriber to Casey’s Gold & Resource Report, you may want to pony up the $39 to check out the current issue. Not only does it contain Andy’s insightful – and scary – interview, but I’ve arranged for huge discounts on the premiums of two bullion coins. The amount of money you’ll save from buying one of each coin is more than the cost of a one-year subscription. And you can’t get these prices anywhere else.

We’re "Calling All Gold Virgins” in the July issue. So if you don’t own any gold, or don’t have enough, well, I’ve made it very easy for you to lose your virginity. Click here to sign up for a risk-free 3-month trial.

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This is a guest post by Jeff Clark, Senior Editor, Casey’s Gold & Resource Report:

One of the big hints that gold stocks will be ready for take-off is when they stop following the broader markets and strictly track gold, particularly if the market falls and gold stocks don’t. We now have data showing this has just occurred.

From April 2009 to April 2010, gold stocks mirrored the S&P 500. The two markets held hands as often as high school sweethearts; there was very little separation between them. While it wasn’t always a daily connection, any weekly and especially monthly chart showed them moving in tandem.

Until now.

gold stocks HUI compared to gold SPX Jul 2010

For the quarterly period of April through June, gold stocks advanced 11%, tracking gold’s gain of 10.7%. The S&P, however, lost 14.1%.

We haven’t seen this level of separation between gold stocks and the general stock market since the first quarter of 2009. This demonstrates obvious strength in our sector, and is precisely the kind of action that can signal we’re getting closer to our precious metals investments starting a major leg up.

In the big picture, this data should be considered a short-term indicator. However, it’s a refreshing reminder that at some point, it won’t matter what the broader markets are doing. In the precious metals bull market of the 1970s, the Barron’s Gold Mining Index soared 652%, while the S&P gained only 22% for the entire decade. This means that if you’re bearish on the economy, you don’t have to be bearish on gold stocks.
Continue reading 'Time To Board The Gold Stocks Train?'

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This is a guest post by Jeff Clark of Casey’s Gold & Resource Report:

While a few mainstream outlets are coming around to at least acknowledging gold’s stellar run, most remain skeptical or outright bearish. And the blasphemy they purport is that gold is in a bubble.

Let’s settle it, right now, and shut these naysayers up.

gold price compared to previous bull market and tech bubble

Gold returned 10 (and as much as 14) times your money in the 1970s bull market, and the Nasdaq advanced over 1,900% during its run. Our current gold price is up about 400% (when measured on a daily basis, not monthly as in the chart).

In fact, the Nasdaq gained 182% in one month in early 2000, and gold surged 80% in four weeks during the blow-off top of January 1980. None of this is happening to our current gold price.

Note to doubters: we’ve got a long way to go before we start legitimately using the “bubble” word.

Besides, the fact that these skeptics aren’t buying – and don’t even own any gold in the first place – is further proof we’re not in a bubble. Ever notice none of them claim to own it?

And they definitely need to catch up on world affairs. The World Gold Council (WGC) reported that Russia, Venezuela, the Philippines, and Kazakhstan all bought gold in the first quarter. Central bank sales, meanwhile, remain depressed.

Russian President Medvedev won’t quit his quest to move international reserve assets away from the dollar. His country’s central bank is backing up his words; it has increased its gold reserves by $1.8 billion and decreased its currency reserves by $6.6 billion so far this year.

China, the world’s largest gold producer, already buys all the gold produced within its country. But the WGC recently forecasted that overall gold consumption in China could double in the coming decade, a demand that production certainly won’t be able to match.

The Iran/Israel showdown appears closer almost every week. As further evidence that each side is preparing for conflict, Saudi Arabia recently agreed to permit Israel to use a narrow corridor of its airspace to shorten the distance for a bombing run on Iran – all done with the agreement of the U.S government. Simultaneously, the UN Security Council imposed a new round of sanctions on Tehran. Nobody appears to be backing down.

And all of this is with no inflation. Core CPI has fallen to the lowest level since the mid-1960s – but what happens when inflation does set in? And what if it’s as bad or worse as the 14% rate we got in the ‘70s? Sure, deflation is the immediate concern, but with a U.S. federal debt of $13 trillion, unfunded future liabilities exceeding $50 trillion, and a current budget deficit of over 10% of GDP, a massive debasement of the dollar is virtually ensured, certain to usher in an onslaught of inflation. It’s coming.

With all these concerns, these guys don’t want to own gold?

Bubble, schmubble. Stocks are vulnerable, bonds are toast, currencies are fiat. Other than cash, where are you going to put money right now?

Gold could correct, of course, and I frankly hope it does. I’m not counting on it, though. The price is just as likely to head the other direction. But if it does temporarily fall, while the bubble-heads are smirking, I’ll be buying.

Someday I think we’ll be reversing roles.

How far could gold and silver fall? And precious metal stocks? Check out our annual Summer Buying Guide in the current issue of Casey’s Gold & Resource Report, which identifies buy zones for all our recommendations. You can try it risk free.

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