The stage is now set for gold prices to gain some traction and challenge its previous all-time highs. Most of the central banks are now turbo charging their printing presses in the vain hope that more liquidity is the key to economic health. Alas, dear reader, this is not the case and as history has proven it never was a remedy for any debt laden enterprise, state or sovereign nation.
We are where we are, but we now have a clearer view of what lies before us so we can plan and implement a strategy for survival despite the burden of the nonsensical, politically motivated constraints under which we must labor.
Our preferred strategy to date has consisted of a three pronged attack, attack being the best form of defense. Firstly, the outright purchase of physical gold and silver, secondly, the acquisition of associated top quality producers and finally, the occasional foray into the options arena in an attempt to provide our portfolio with a leveraged boost.
Today we will focus on gold itself, a form of money that cannot be printed by any organization including our governments. This is a very important attribute that gold has carried for six thousand years or so. Having been described as a barbarous relic, many central bankers chose to follow Gordon Brown's lead and disposed of their gold reserves, unfortunately Gordon auctioned Britain's gold at the very bottom of the market. Here we are a decade later and gold prices have increased about seven fold since this error of judgment cost Britain dearly. However, the central bankers would appear to have had a "road to Damascus" experience in that they are now largely, purchasers of the precious metals. Their demands will underpin gold prices for years to come.
By now we are all aware of the currency debasement that each nation sees as a way to make their goods and services more competitive in the international markets and hence boost their own exports, with the view to keeping much needed employment at home. However, when your competitors are also implementing the same strategies, they tend to cancel out your own efforts, but still they persist. We need to remember that their objectives differ from yours in that they need to keep things as sweet as possible in order to be re-elected and keep their lucrative lifestyles intact. The damage caused will rear its ugly head in the form of inflation somewhere down the road and will affect all of us, if it is not already doing so.
Our mantra has been to focus on the need to protect ourselves from the difficulties that we see on the road ahead of us. It is going to be a white knuckle ride as prices continue to rise and the job market continues to wane.
Our suggested panic room for protection against inflation is physical gold. We are of the opinion that everyone should hold some gold regardless of where you live or what you do to earn a crust.
Finally we will take a quick look at the chart for gold.
On the positive side of this equation we can see that the 50DMA has moved up to crossover the 200DMA in an upward swing. This is often referred to as the golden cross and is usually very positive for gold prices. The anticipation of QE3 and then the news of its implementation have contributed to a $200.00 rally. There are a number of resistance levels still to be overcome, however, gold is not too far from making a challenge and setting new record prices.
Now for those interested in the short term, please note that the technical indicators, MACD, RSI and STO look to have hit the ceiling and to be running out of steam. All three indicators have turned south, suggesting that a pullback could be the order of the day. Timing such short term moves is a difficult process at the best of times compounded by the fact that you would be placing a down bet in a rising market. It can be done and with considerable success, however on this one occasion that old intangible, gut feel, suggests that this pullback will be shallow and short lived. An alternative consideration to a down bet might be to wait a short while for this minor correction to work itself out and then as the old cliche goes, buy the dips.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I am long GLD via the use of options.
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