Gold is currently brushing aside seemingly bearish gold news revolving around Bin Laden’s death and moving higher. This rally in gold has a lot more to do with the debt crisis than terrorism. Commentators predicting gold’s demise based on recent events are just proving how clueless they are.
Since silver’s huge run-up, gold has looked a lot more attractive to me on a relative basis. In recent weeks, gold has not surprisingly played “catchup” to silver. With the spike rally in gold this morning, it appear $1600 is coming very soon. While I still feel a lot more comfortable being long gold than silver right now, if gold continues to rise while silver consolidates, I will probably shift my allegiance to silver in the short to medium term.
As I said while silver was rising rapidly, consolidations are very constructive for bull markets. As a precious metals investor, I would much rather see consolidations than parabolic rallies; it is not even close. Take a look at gold’s latest rally- it came off the back of consolidation. Gold has been building up energy for this rally for 6 months. In my opinion, this rally still has legs.
Based on recent events, gold and silver may move in the background. This is a positive. I recall how much fanfare there was when gold first hit $1,000. At the time, I felt a nice good correction would do gold some good. The correction came and most people decided to forget gold while the smart money was building a position. The best thing for gold right now is if people ignore it even as it hits record highs. As I’ve said before, gold is very undervalued using objective metrics that are more sophisticated than the classic “gold went up $1,000 so it’s too expensive” arguments. There are still years left in this bull market in my humble opinion.
It appears as if we are entering a period of extreme volatility. The 2nd half of 2011 into 2012 should be very interesting. None of our debt problems have been solved and we are entering an election year. We shall see if the average person believes there is an economic recovery or not. Civil unrest should be a concern in America in 2012.