Why I'm Bullish on Gold, but Still Waiting

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"Although I am bullish on gold in the medium to longer term, it is unclear whether gold's retreat has been completed."

When it comes to gold bullion and gold stocks, I started my investment career in 1984 as none other than a mining analyst. Ever since those days, I have been intrigued by the shenanigans of the yellow metal and related stocks. Over the years, I have also learned that one should never underestimate the ability of the gold price to surprise when least expected.

As printing presses run at full speed to produce ever-increasing quantities of fiat money as governments engineer the greatest asset price reflation in human history, the longer-term fundamental case for the yellow metal is arguably positive. Marc Faber, author of the Gloom, Boom, & Doom Report, yesterday said he was "100% sure" the U.S. will enter hyperinflation because of the Federal Reserve's reluctance to raise interest rates.

The following is from a report on the fundamental case for gold by London-based Bedlam Asset Management:
It is very easy to make a case that the gold price could enjoy or suffer (depending on your point of view) an explosive run. Given all economies (and businesses) are cyclical, then it is axiomatic that over time they will also revert to the mean. Therefore it can be expected that not just central banks, but also commercial banks and other financial institutions will revert to earlier policies of the 1970s and '80s—of holding a proportion of their 'core' capital in gold. Governments could try to prevent wider gold ownership as before, but new forms of ownership—such as gold ETFs—make it difficult to do so unless all leading nations agree simultaneously.

… Our damp rabbit's foot hints at a much higher price before the end of 2010 because the triggers are already in place: the absence of meaningful new mine supply, the cessation of central bank sales, explosive growth in money supply and of course, rising political uncertainty, which is the Siamese twin of recessions.
Although I am bullish on gold in the medium to longer term, it is unclear whether gold's retreat has been completed. Sharp and violent corrections are typical of gold bull markets, but I would delay purchases until a clear chart reversal manifests itself, which may or may not happen at lower levels.

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