Gold has been up 10 out of the last 10 years and it will be up again this year, I have no doubt. I wrote an article on Aug 24th "Cash In Your Gold And Buy Into These 7 Strong Stocks" when gold was peaking in the fourth quarter of 2011 at slightly over $1,900 a share. I stated:
GLD has been on a tear over the last year. I believe the GLD is a crowded trade and is overbought. Consequently, it's time to take money off the table, because the safe-haven rally in gold has gone too far too fast. With the recent parabolic move and resulting margin raise, it is only a matter of time before GLD breaks down and corrects 300 points.
Well, gold proceeded to correct 300 points soon after I wrote that article and is starting to begin its next rally as we speak. I am bullish on gold and believe the current sell-off has provided an excellent buying opportunity. An exorbitant amount of incessant berating of precious metals by pundits recently coupled with several geopolitical and macroeconomic catalysts will drive gold to new heights.
Gold rallied for a second day on Wednesday, hitting its highest in a month after a stronger euro helped boost the price above a key technical level and evidence of strong demand from major consuming nations further supported the market.
Gold is up 1.5% this week, along with a slight uptick in the euro, even though concerns that the eurozone fringe nations have yet to solve their issues. Gold recently rose above the 200-day moving average of $1,635 which was seen as a major resistance level. The break above the 200 day moving average is providing investors a technical impetus to buy. U.S. February gold futures are up 0.8% at $1,644.50 an ounce.
Please review the following excerpt from a recent Reuters update on gold.
Ross Norman, director at bullion dealer Sharps Pixley, said:
"Gold has come well through that (the 200-day moving average) and I would not be surprised if some of the buying we are seeing is short-covering.
This is a big relief for gold bulls that, in fairly short order, we've managed to overcome that technical level.
"The other thing I think that is fairly significant is the Chinese story ... the imports from Hong Kong have been phenomenal," he added.
China imported nearly a fifth more gold from Hong Kong in November than the previous month, continuing a trend of sharply rising purchases that has seen bullion flows to the mainland more than treble in the first 11 months of the year.
A record 102.525 metric tons of gold entered the mainland from Hong Kong in November, pushing the total gold flow in the first 11 months of the year to 389.295 tons, said the Hong Kong Census and Statistics Department.
The volume of gold traded has risen in the last week, indicating more investors are active in the market once more.
According to data from CME Group, which offers the benchmark gold futures contract, volume on Tuesday topped 160,000 lots, reaching its highest since early December and about 25% above average turnover on a rolling-one month basis.
"While the dollar may not see a significant correction soon, and is likely to continue to gain against the euro as the eurozone crisis persists, the negative effects of a stronger dollar on gold are likely to be largely diminished in 2012, allowing the bullish macro drivers to dictate price action once again," Societe Generale said in a research note.
The prospects of aggressive monetary easing from the world's key central banks, including the European Central Bank, will keep sentiment for gold and silver bullish, it also said.
Gold usually trades inversely to the dollar, falling as the U.S. currency rises, when non-U.S. investors find it more profitable to sell the metal and book a higher profit when exchanging the dollars back into their own currencies.
The correlation between gold and the dollar reached its most negative in 14 months last week, around -70%, although this relationship has eroded in the last few trading days to closer to -50%, meaning the gold price is less likely to suffer if the dollar picks up.
Adding to the support for gold, dealers reported strong physical demand from India, the world's largest bullion buyer, after the rupee hit a one-month high against the dollar.
GLD Performance Chart
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GLD Performance Details
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7 Gold Macro Drivers
- As fiat currencies continue to devalue, gold will march higher in value. No fiat currency in history has survived to date. It's a race to the bottom for the world's central banks as they continue to one up each other's quantitative easing efforts.
- A major portion of the recent correction can be attributed to a well-known year-end occurrence regarding gold's performance in December. Gold market makers have closed up shop for year end. The big gold commodity funds have closed up for the year and have essentially stopped buying.
- Recently many central banks of emerging markets lowered their interest rates, consequently lowering the cost of borrowing. In most cases inflation will outstrip the yield on savings, creating negative real interest rates. Thus, investors will take flight to precious metals and protect their wealth from devaluation.
- Gold is incredibly under-owned by institutions relative to historic levels and relative to differing asset classes.
- The long-term trend of the U.S. dollar is lower. Conversely, the long term trend for gold is up. As the dollar's value continues to dwindle and worldwide economies recover, investor focus will swing from deflation to inflation which bodes well for gold.
- The deviation between mining stocks and gold is huge by historical standards. In due course, this trend will reverse and the gap will return to normal levels. Miners burnt by recent earnings misses have curtailed their growth forecasts and earnings outlooks which will accelerate the pace of rebound as they exceed their lowered expectations.
- As the middle classes of China and India emerge, their demand for gold will rise exponentially. Special occasion gifts are mostly conveyed in gold in these countries. India is the largest importer of gold peaking at nearly 850 tons per year.
7 Gold ways To Play the Coming Gold Rush
My top seven gold plays are as follows: Market Vectors Gold Miners ETF (GDX), SPDR Gold Shares (GLD), Barrick Gold Corporation (ABX), Newmont Mining Corp. (NEM), Goldcorp Inc. (GG), Market Vectors Junior Gold Mine (GDXJ) and AngloGold Ashanti Ltd. (AU). These stocks and ETFs are highly correlated to gold and cover the spectrum of miners and bullion ETFs. Layering in to positions and buying a basket of stocks will reduce risk.
In October 2008 gold plummeted 18% and subsequently rebounded 23% over the next two months. This is the eleventh 10% correction for gold since 2003. Gold has always bounced back and soared higher each time. With gold being up 10 out of the last 10 years and central banks caught in a game of "catch-as-catch-can" in a race to devalue their currencies, inflation will soon become the issue of the day. Mark my words, gold is about to skyrocket.
Nonetheless, this is only the first step in finding winners for your portfolio. Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security.