Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21
Dell S3220DGF Price CRASH to £305! 32 Inch 165hz Curved Gaming Monitor Amazon Bargain - 16th Jul 21
Google, Amazon and Netflix are Scrambling For This Rare Gas - 16th Jul 21
Sheffield Millhouses Park New Children's Play Area July 2021 Vs Old Play Area - Better or Worse? - 16th Jul 21
Inflation Soars, Powell Remains Unmoved. What about Gold? - 16th Jul 21
Goldrunner: Gold Could Jump To $1,900-$2,100 In Next 30 days – Here’s Why - 15th Jul 21
Tips For Finding The Right Influencers - 15th Jul 21
ECB Changed Monetary Strategy. Will It Alter Gold’s Course? - 15th Jul 21
NASA And Big Tech Are Facing Off Over This Rare Gas - 15th Jul 21
Will the U.S. Dollar Lose Momentum In the Second Half of 2021? - 15th Jul 21
Bitcoin Stock to Flow Model Forecasts Infinity and Beyond! - 14th Jul 21
Proteomics: The Next Truly Massive Investing Opportunity - 14th Jul 21
Massive Solar Storm to Hit Earth 2025, Coronal Mass Ejection (CME) Danger and Protection Solutions - 14th Jul 21
Is This The Best Way To Play The Coming Helium Boom? - 14th Jul 21
Meet SuperMania and its Ever-Present Sidekick, SuperMeltdown - 14th Jul 21
How NFTs Are Shaking Up Arts Trading - 14th Jul 21
Gold: High Time to Move Out of the Penthouse - 13th Jul 21
Climb Aboard! Silver Should Run Up To $38 In Next 30 Days - 13th Jul 21
How Will Remote Work Impact the U.K. economy? - 13th Jul 21
Why Helium Stocks Are Set To Soar in 2021 - 13th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Where Have All the Gold Bulls Gone?

Commodities / Gold and Silver 2011 Dec 21, 2011 - 06:20 AM GMT

By: Jason_Hamlin

Commodities

Best Financial Markets Analysis ArticleAnother correction has fallen upon precious metals and sentiment has turned extremely bearish in the past month. Mark Hulbert has reported that gold bugs are throwing in the towel, with his Hulbert Gold Newsletter Sentiment Index (HGNSI) hitting a record low of just 0.3%. This reading means that the average gold timer is essentially keeping all of his gold-oriented portfolio out of the market.


While inexperienced investors may view this as confirmation that gold has topped, this is precisely the time when it historically likes to blast higher and leave behind the weak hands that panicked out of their positions. Gold’s recent ascent towards $2,000 has attracted droves of new investors that have jumped on the bandwagon, often speculating with leverage. These investors tend to be easily shaken out of their holdings and are most vulnerable to the same recycled arguments heard during every correction about the gold bull market being over. I’ve seen dozens of headlines lately from analysts that have stuck a knife in the gold bull and pronounced it dead. Many of these claims are coming from the same pundits that called a top for gold at $500, $800, $1,000 and so on. They will be right eventually, but my money says it will not be this time around.

The fundamental reasons to own precious metals have not faded one iota. In fact, they have only become stronger and more convincing in the past year. The money supply, in U.S. dollars and every other variety of fiat, is still increasing rapidly as central banks crank up the printing presses in order to provide liquidity, stimulus and fund the addiction of deficit spending. The debt-to-GDP ratio of the United States has been steadily climbing and is now reported to be above 100%. This is the level that most respected economists consider to be the point of no return. Of course, when factoring in unfunded liabilities, Uncle Sam’s true debt-to-GDP ratio is likely closer to 500%. Not to be outdone, the true debt-to-GDP ratio of the UK is estimated to be near 1000%!

Central banks are still buying gold aggressively, real interest rates remain negative and every other fundamental reason to buy gold remains intact. The recent strength of the dollar versus the Euro has generated some perceived downward pressure. But this is nothing more than a short-term battle between fiat currencies. They will both succumb to the same fate eventually, although it appears that the Euro may be the first to fall.

Despite this being the strong seasonal period for precious metals, gold is down roughly 12% and silver is off 16% from their respective November highs. The technical damage has exasperated the decline, as many funds and automated trading systems were stopped out. Let’s take a closer look at the chart and see what we might be able to glean about the current correction and future price action.

The first thing to point out is that gold is still trading within its inner trend channel (dotted blue line), so the upward trajectory is still solidly intact. The pain from the recent decline has been magnified by the fact that gold had previously rallied by more than 25% in just under two months. This pushed gold outside to the upper line of its outside trend channel and into overbought territory. A move this powerful has not been seen since 2008. This helps to explain why the recent drop has been perceived by many investors as much worse than it actually is.

The gold price has now found support at its 200-day moving average and bounced strongly today. This technical support is just above the lower line of the inner trend channel and has held up on six separate occasions since 2008. I think this support will most likely hold again, as the only time it failed was during the extreme conditions created during the financial collapse of 2008. Even going back as far as 2000, any dips below the 200-day moving average or long-term trend channel were very shallow and short-lived. Absent a complete break down of the financial system, gold has much greater upside potential than downside risk at this juncture.

While our financial system is actually more fragile now than it was back in 2008, there has yet to be any serious panic like the one that occurred in October of that year. Most investors still feel relatively safe in the stock market and believe the government propaganda about improving economic conditions. Central banks are coordinating to fend off another collapse and although I am not convinced they will be able to do it for long, mainstream investors seem relatively placated.

Whether gold holds at this critical support line or dives towards $1,400, depends primarily upon whether or not European banks go under and Euro nations begin defaulting. While I believe the central planners are running out of options, my money says they still have enough tricks up their sleeves to keep things afloat a while longer.

Election years historically produce a strong performance in the equities markets. Given that Obama is in bed with the large banks (Goldman Sachs was his largest donor), my guess is that they will do everything possible to continue kicking the can a bit further down the road. It is in their interest to do this, at least until they can get another puppet in office and deflect the threat of a true patriot such as Ron Paul gaining power.

While tax-loss selling amidst thin trading could create additional downward pressure to close out the year, I look for a sharp rebound in precious metals to start the new year and think we will most likely see $2,000 gold during the first quarter. But prudent investors need to keep an eye on the European financial crisis and have proper stop orders in place to protect capital. If the toxic derivatives mess goes critical, all bets are off and gold could easily fall to $1,400 or lower.

2012 promises to be anything but boring. With the proper investment approach and an eye to picking up severely undervalued miners when others panic, I believe the coming year could offer some enormous opportunities for precious metals investors. While the short term volatility can be incredibly painful to stomach, this bull market is far from over.

To receive my monthly newsletter, including access to the GSB portfolio, email trade alerts whenever I am buying or selling, and detailed guides on how to become self-sufficient and prepare for economic crisis, click here to become a Premium Member.

By Jason Hamlin

http://www.goldstockbull.com/

Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. You can try it for just $35/month by clicking here.

Copyright © 2011 Gold Stock Bull - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in