Gold Is Top Investment Tip for 2010

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"Gold has been moving up in $200 steps every two years for the past decade."

The recent $125 correction in the gold price from $1,226 per ounce leaves some analysts thinking that the bull market is finished. But anybody with even a passing knowledge of investment analysis ought to recognize a buying opportunity rather than the end of an uptrend.

Gold has been moving up in $200 steps every two years for the past decade. However, each leg up is characterized by a hesitation and retracement. That is what we are seeing now.

It was only very recently that gold finally cleared the $1,000 an ounce hurdle, after several attempts. Then it hurtled straight up past $1,200 and has just fallen back. It might take a couple of more attempts before $1,200 is history.

But if you buy gold now at $1,100—or wait a bit longer and hope that a dollar rally and equities correction drops it to $1,050—then you probably have a 10% profit for 2010 already in the bag, for the price will surely at least pass the recent $1,226 peak.

More likely you are in for a much higher gain. A repeat of the 30% increase now estimated for 2009 is perfectly possible. The normal seasonal pattern for gold would see a strong recovery in the price in the spring followed by the traditional summer lull, and then in the autumn—as this year—the best price action would follow.

Professor Nouriel Roubini is pessimistic about the gold price because he thinks the world is in a deflationary rather than inflationary cycle and that gold will not do well unless paper currencies are being undermined by inflation—in other words, devaluation.

Dr. Marc Faber is more optimistic and believes governments can be relied on to print more money, and that the amount of money already printed but not in circulation is already highly inflationary.

Anybody with the good fortune to have taken Dr. Faber's advice on gold over the past decade would have outperformed all other major asset classes. He does not think gold expensive at $1,100. On the contrary he reckons it is still cheap bearing in mind all that has happened in the past decade.

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