Posts Tagged ‘bull market’
Gold Price Correction
Gold is down for the second day in a row. As of this writing the gold spot price on the Comex is $1,181.10. That is down from an all-time intra-day high of $1,265 posted a month ago. Gold is trading in a range of $1,185 to $1,250. The price action has been pretty volatile inside of this range, closing up one day and down the next. This is typical action in any bull market, but is characteristic of a second phase. Traders are capitalizing on profits before the next big move in gold.
The price of gold has fallen for four straight weeks, over concerns of deflation. The CPI has declined for three consecutive months and has not dropped four months in a row since the Great Depression. Look for Unemployment to increase, retail sales to remain weak and consumer confidence to wane further. These factors have contributed to temporary deflation giving many gold traders an excuse to liquidate gold investments tied to the gold price.
With the entire stimulus the US government has put into the system, these deflationary pressures will begin to turn into extreme inflationary pressures. This is the main reason why many experts believe that the gold price has a long way to go before reaching an ultimate record price, before suffering a major correction. Some experts are calling for $7,000 to $15,000 gold prices before it’s all over.
July and August are typically softer months for gold followed by a rise in prices during the fourth quarter, signaling a good time to buy in. This has been true in eight out of the last nine years. Further analysis of the gold market is showing that right now is a great time to buy rare gold coins. Prices are down across many areas of the asset class and are creating great opportunity and extreme values. In fact some coins are estimated to be undervalued as much as $1,400 per coin. These prices are down from December when gold broke the $1,200 mark. Values are best in the MS63 & 64 $20 Liberties.
Gold Bubble?
I found this chart produced by Casey Research.com and I couldn’t stop looking at it. It is by far the most convincing chart I have seen in regards to showing that gold is not in a bubble. The chart compares previous familiar bull markets in the Nasdaq and gold in the 1970’s. Take a look and decide for yourself.
It looks like we are heading for extreme upward action in the not to distant future. Gold has only increased 400% in this bull market thus far, whereas in the last gold bull market gold increased from $35 per ounce to $850 per ounce, which is an increase of over 2,300%. Looking at this chart and the figures we are a long way out before we can use the term bubble.
Look at mentalities at the end of a bull market. Everyone is trumpeting the investment. There are a lot of naysayers for gold in the media today. When the third and final phase hits, everyone will want in. It is nearly impossible for anyone to resist the panic phase of a bull market, and thus the reason why prices rise rapidly. Most of these naysayers do not own gold, but one day they will. But I would rather be in now before the price skyrockets.
Look at what foreign central banks around the world are doing. The World Gold Council (WGC) reported that Russia, Venezuela, the Philippines, and Kazakhstan all bought gold in the first quarter; and China which is the largest gold producer in the world buys every ounce they produce. This shows us that those in the know want gold as a protection against fiat paper.
Gold can definitely correct in the near-term and hopefully it does because it will be another buying opportunity. Jeff Clark editor at Casey Research said “Stocks are vulnerable, bonds are toast, currencies are fiat. Other than cash, where are you going to put money right now?” Gold and silver in my opinion are the only option.
Why Gold Prices are Not in a Bubble
As the price heats up on gold and breaks records in nominal terms more people become fearful that gold is in a bubble. These concerns are justified as people do not want to buy in at a top. Many people lost a lost of money in the dot com bubble of 1999-2000 and the real estate bubble of 2004-2006. People do not want to get caught in a bubble again. To understand that we are not at the top of the gold market yet, one must only look at the trends.
Gold has been in a 10 year bull market, starting in 1999 with a low price of $252.20. Since then the price of gold has been steadily rising building a solid foundation all along the way. Just because we have seen gold recently break a record price in nominal terms (adjusted for inflation the real all-time high is around $2,300) does not indicate a top is being formed. Typically tops come when prices rise dramatically over a short-period of time with no corrections or foundation being built along the way. If you take a look at the gold chart below you will notice many ups and downs, but if you draw a line from beginning to end the trend is steadily rising. There haven’t been any dramatic gold price run ups without a slight correction behind it.
Typically a bull market will experience three phases. The first phase is the accumulation phase where the asset will go up slowly without too much attention being paid to it. On the chart below this represents 2000 to the middle of 2005. The second phase, where we are now, is the awareness phase. In this phase prices will rise a little more dramatically than the first phase due to increased attention being paid to the asset by Wall Street and the general public. Notice that everyday gold receives more coverage on air. More commercials to buy and sell gold pop up weekly and new companies are formed to meet demand.
The third and final phase, which is probably a few years away, is the panic or speculation phase. This is where the price will rise very fast without any significant corrections. This is where bubbles are formed. This is where you want to sell. Most people make the mistake of buying too late in the third phase. In the third phase everyone will be bullish on gold. All of your friends, neighbors, waiters etc will want in. When exactly this phase will play out, in my opinion will be determined by what goes on in the economy. If governments around the world continue to print money to bail us out, gold could do well for a long time to come.
Is Gold Bullion a Good Investment?
Gold bullion is a great investment. It has averaged a rate of return of 17.1% over the last 9 years. It has fulfilled its role as a financial insurance for those that have owned it during the 9/11 crisis, banking failures and stock market correction during that same time frame. So not only did gold bullion appreciate dramatically (over 340%) but it also kept people safer. But where is gold headed?
Ask yourself the following questions: Is the U.S. economy is on its way to recovery? Is the dollar going to continue to be the world’s reserve currency for the next 20 years? Is our national debt here in the U.S. repayable? Is the government going to continue to print money? If you answered yes to any of these questions then gold is a good fit for your portfolio. Gold is first and foremost a financial insurance. It should be used to protect the paper assets you have accumulated throughout the years. If you don’t have any, you are vulnerable.
But where is gold headed. Many experts would say it is going much higher from here. Spot price predictions are all over the board. From $1,300 to $47,000 per ounce before this bull market is all over. No one has a crystal ball, so take predictions with a grain of salt. Look at underlying trends and understand how bull markets work. We are currently experiencing a full fledged second phase. Very few people in the U.S. actually own gold and this will change. We will eventually reach the third and final phase where gold will reach higher and higher highs. This run up will typically be dramatic because everyone will want to own gold at any price. In my opinion gold bullion is a great investment.
What are better than gold bullion are numismatic/rare gold coins. They have consistently proven over the years to offer better protection and performance for their owners. The most common $20 Liberties and $20 Saint Gaudens have achieved an average rate of return over the past 9 years of 31.79%. Nearly double gold bullion. These coins are private and confidential and offer protection from gold confiscation. They have a higher cost of doing business so you need to be able to hold them long enough to allow them to do what they need to do. Most companies will recommend 3 to 7 years, but this will depend on the trend cycle. If gold takes off watch for rare gold coins to do the same.
Ron Paul Predicts a Currency Crisis is Coming
Ron Paul spoke with Fox news about another crisis that is coming. He states that we have a debt monster that is growing and that the U.S. is much worse off than it’s ever been. He also states that we are headed down the path that a lot of the countries in Europe are on. He believes that the foundation has been built for a currency crisis within the next 2-3 years, and that we will see massive amounts of inflation and disruption in the U.S. What does he do to plan for the coming crisis? He buys gold to protect his family.
Ron Paul has long been known for his candidness with his beliefs. He is thought of by many as the man that this countries needs to get us back on the right track. When he speaks people listen. He has been an advocate for 10 plus years of not passing any bills unless we have the money to pay for it. If this thinking was spread across congress we would not be in the predicament that we are in today. Our debt is over $12 trillion and growing rapidly. Bernanke has increased the nation’s monetary base from September 10, 2008 to March 10 of this year, from $850 billion to $2.1 trillion. That is 2.5 times in 18 months. This has never been done in U.S. history.
Jim Rickards recently wrote in a piece called Debt Denial, “The sovereign debt crisis has
crossed a threshold. It’s no longer about economics. It’s about math and a complex system whose dynamics tell us there is little time to avoid catastrophe and almost no exit. Going forward, elections and policies will matter less as the debt plague takes hold and dictates hard outcomes. It is the case that real debt cannot be repaid through any feasible combination of growth and taxes.”
Between the words of Ron Paul and Jim Rickards we are in a dire situation that quite possibly cannot be reversed. Inflation, hyperinflation and collapse of the U.S. dollar are possibilities that loom over us everyday. They both endorse gold as an individual’s solution to protect oneself. The time to own gold is now. Many experts believe gold is going much higher before this bull market is over. But that is not the main reason anyone should own it. Gold is first and foremost a form of financial insurance, and should be treated as so. Read more on the different types of gold and how to acquire them and get yourself protected.
Gold is Rising Again
Gold is rising on strong technical momentum and a lower U.S. dollar index. Gold is trading up for the 9th day in a row as of this writing. After hovering around $1,100 per ounce for months gold is finally making its move towards the $1,200 mark that we saw in December of last year. There is a lot of fresh speculative buying interest ahead of quarter two earnings season which starts on Monday.
After the breaking news about the manipulation of the gold and silver markets at the CFTC hearings many traders are pushing their positions from paper to physical. This is largely due to the 100 to 1 leveraging in the paper metals market, meaning that there is only 1 ounce of physical metal for every 100 ounces of existing contracts. These naked positions have traders concerned that when they call for their gold instead of dollars, that these requests will be defaulted on; if this happens watch for gold and silver prices to rise dramatically on the short squeeze.
David Morgan founder of Silver-Investor, said that if he sees gold trade above $1,150 per ounce for 3 consecutive trading sessions he feels the trend will continue and will likely breach the $1,200 mark soon. There is a major psychological barrier for investors at $1,200 per ounce. Achieving new highs is always tough.
Look for the bull market trend in gold and silver to continue for a few years. The markets have not yet seen the third and final phase of this bull market. This occurs when everyone wants in and money is pouring into the gold and silver markets like it did into the real estate market in 2004 and 2005. This will create a massive run up in prices with no support levels being built underneath.
Rob McEwen comes out with his Projections on the Gold Market
Rob McEwen, Chairman and CEO of U.S. Gold and founder and former CEO of Gold Corp the second largest gold producer in the world was interviewed by Bloomberg on January 12th 2009. He has been on the record since March of 2006 saying that gold will reach $2,000 per ounce by the end of 2010. He also states that he believes that gold will hit $5,000 per ounce somewhere between 2012 and 2015.
He sites as his reason for this rapid run up in the price of gold will be due to the governments around the world printing money at a high rate. Mr. McEwen thought that the bull market would have ended by now, but people are starting to see gold as money, a currency that trumps all others. This new demand has fueled the fire further than he thought it would. He is so strong on gold rising that he advises that gold mining companies do not hedge.
In my opinion, Rob McEwen could be right. Gold is in a bull market, and typically bull markets end with a blow-off top in the third phase. We have not seen that third phase yet, so we could see very sharp and dramatic price increases during that time frame. It is undeniable at this point that the U.S. Government is printing money at an alarming rate. Some experts speculate that they have doubled the money supply in under a year’s time. Anytime money printing is done in this fashion it puts extreme pressure on inflation which in turn puts upward pressure on gold. Look at what gold did in the 1970’s, when inflation was running high, gold grew from $35 per ounce to $850 per ounce.
All assets run in cycles so we very well could see gold hit $2,000 per ounce this year. I think it will depend on how the economy performs this year and how much confidence is instilled in the American people. Many have said that the hole has been dug and that the dollar will ultimately collapse like all other fiat paper currencies have. If that is the case gold could go much higher than even $5,000 per ounce. But let’s hope that doesn’t happen, because if it does we are in a lot more trouble than any of us want to be.
5 Reasons why Gold is a Good Investment Today
1. Hedge against inflation
2. Hedge against a collapse of the U.S. Dollar
3. Bull Market
4. Diversification
5. Store of Value
Probably the number one reason why people are investing in gold today is due to a fear of inflation. Central Banks around the world have turned on the money spigots and began flooding banking markets around the world with liquidity. This has scared many people and rightfully so. Once all of this liquidity hits the hands of the people we are in for a serious bought of inflation, maybe even hyperinflation. I have read some statistics that have said that the Federal Reserve (which by the way is a private bank) had doubled the money supply in a year’s time. It will be difficult for the Fed to draw back in all of that liquidity. Although they want you to believe it will be easy for them. When inflation hits gold prices will continue to rise.
Some people are even more concerned that the U.S. dollar will not only hyper inflate, but that it will eventually collapse and become worthless paper. We have seen this happen many times throughout history, the most recent being Zimbabwe. Their currency was declared dead in April of 2009. Citizens of Zimbabwe began digging and panning for gold in order to scrape together enough grams of gold to be able to provide for their families. Gold goes a long way under these circumstances.
On a more positive note, gold can be played purely as speculation that the price will rise. We are in the middle of the 10th consecutive year of price appreciation. This is a strong bull market for gold, and many experts are calling for gold to reach $2,000 to $5,000 per ounce before the cycle ends. Therefore, putting money into gold now, if the experts are right, can be very lucrative.
Gold is always, first and foremost a portfolio diversifier. Gold typically performs better when stock, bonds, dollars and other paper assets do poorly. However there are times when gold does well in conjunction with paper assets, but typically gold and other precious metals will compliment your paper assets nicely, giving you appropriate diversification.
Gold has always been a store of value. For over 5,000 years gold has been coveted and treasured. Gold will never be worthless, while any paper asset can be rendered worthless under a variety of circumstances. Now gold can definitely decline in value but it will always be worth something. Governments and countries can collapse and companies can go bankrupt which would then render those respective paper assets worthless. Gold has no debt or any other encumbrance or decision maker attached to it other than you.
These times are proving to be the perfect time to own gold.
Gold Price Gains and Losses over the Last 3 Months
The price action on gold has been hot lately. Gold closed at an all-time high on December 2nd of $1,212.50 per ounce. The price action prior to that was climbing almost daily from the $1,050 mark. After it reached the high of $1,212.50 it slowly made its way down to test the $1,050 support level. It came close to this support level but never broke it. It closed at around $1,058 on February 5th and since then has steadily climbed to where it sits today of $1,112.
The up and down market action can be scary for your average investor. This is why I always say, if you are not a day trader then you do not need to pay attention to the daily market action. What you are looking for are trends in the market. Trends are what tell you what to do in the long-term. Trends should guide your strategy. If you look at a chart of gold from 2000 to present you can see a long-term positive trend. It started at $252 per ounce and has been climbing ever since. Sure there have been some big corrections along the way, buy that is what you want. Ups and downs are a sign of a healthy market. If you were watching the daily market action you might have sold out too early. This is why trends are so important.
Take March of 2008 to November of 2008 for example. Gold rose to an all-time high of over $1,000 per ounce and steadily fell to $709 per ounce. Had you have sold out because of the downward slide, you would have missed out on the following upswing. As for the current trend, everything is pointing towards a continuation of the upward trend. Two of the biggest factors playing into the future of the gold market are the U.S. Dollar and normal bull market cycles.
The dollar has been in a steady demise for a few years now, and with all of the money printing going on with the U.S. government I don’t think it will be going strong anytime soon. I have written many times in this blog about the three phases of a bull market which I think is also a big factor contributing to the positive trend in gold. Many experts are calling for gold to hit $2,000 per ounce this year and $4,000 to $5,000 per ounce before the trend is over.
Gold Market Ups & Downs
Some people are concerned out there that gold is too high and will be coming down. My answer is, I hope it does. Ups and downs are part of any healthy bull market. The key to investing in anything is to identify trends. Gold has closed higher than the previous year close 8 years in a row. This is an upward trend. Gold has come all the way from a low of $252 per ounce. Sure there have been ups and downs all along the way, but that is what you want. If gold only rose and never corrected then we would be getting close to the end of the bull market.
Money in gold is made in the long-term. Buy and hold though the trend cycle. Don’t be scared when gold goes up and then corrects. For example, in March of 2008 gold rose to $1,032 per ounce and then corrected all the way down to $792 per ounce in October of the same year. People are always going to take profits all the way through the trend cycle. Gold as of this writing stands at $1,123. If you would have stayed out of the gold market just because gold was falling rapidly for 7 months in 2008 you would have missed out on some serious gains.
Will gold rise in the future? No one knows for sure, but what does the trend cycle say? The trend cycle would suggest that we still have a ways to go before this gold market tops out. The simplest way to analyze this would be to look at the three phases of a bull market and see which phase we are in. Many experts would suggest that we are in the second phase, which would point to the fact that we haven’t seen the third and final speculative/panic phase where gold will rise rapidly. To read more on the three phases of a bull market click on the underlined phrase in this sentence.
Any healthy gold market will have ups and downs, therefore it is important to identify trend cycles. We are in a rising trend currently so don’t let market corrections scare you, even if they seem to be a big one.