Gold Just Relaxes As Stocks Plunge

Source:

". . .we should savor the fact that gold is still a relative bargain compared to just about every other asset class in which one could shelter his or her savings."

Global markets verging on collapse dragged bullion lower yesterday, but not by much. While Comex April Gold finished down 1.4%, the Dow's lost three times as much, falling 300 points on the day, or 4.2%. Rick's Picks subscribers managed to dodge the bullet with a short position in the Gold Miners ETF (GDX) that has gained 50% since we acquired it last week.

Anyone feeling disappointed over gold's sullenness in recent days should contemplate the carnage in any of a dozen other investment classes; the Dow, for instance. It is now trading 52% below the 14198 record high reached in October 2007. Compare that to gold, which even after the sharp selloff of the last few days is still within 12% of its all-time high, $1050, recorded almost exactly a year ago.

From a technical standpoint, the thing to notice about gold is that the rally spike to $1,007 a few weeks ago exceeded a key high at $1,005 made back in July. The $2 overshoot may not seem like much, but according to the Hidden Pivot Method that we use to forecast trends and price swings, it is enough to all but guarantee that the current bout of weakness in gold (and silver) will give way to another strong leg up. Gold's primacy as an investment asset should be in-your-face obvious to all by then, since it will be establishing a base above $1000 at the same time the Dow Industrials are hitting 10-year lows.

Under the circumstances, bullion investors have good reason to be patient. It was foreseeable that gold would get knocked down when it briefly poked above $1,000 a couple of weeks ago. The subsequent selloff in gold was due in part to the dog-and-pony show that starred our Fed chairman and the President. For a few days, with Bernanke talking about inflation being under control, and Obama stumping for WPA II, the average viewer might have gotten the impression that our leaders had things under control. We did not expect this state of mass psychosis to persist for long; nor did it. But the stock market's latest, nasty decline has sapped the pool of investable funds that might conceivably have been deployed in gold, and with it the energy that money managers will require to panic into gold. They will make this leap to redemption eventually, if only to save their necks and not their souls.

In the meantime, we should savor the fact that gold is still a relative bargain compared to just about every other asset class in which one could shelter his or her savings.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe