Gold Investing: The Time to Jump Back in Is Very Near

By Michael Lombardi, MBA

Gold prices are falling, which could mean a good opportunity to buy gold or gold-related investmentsPardon the rudeness, but I’m salivating at the mouth this morning. After a rocky start to 2011, it looks like I might finally get my opportunity to buy more gold investments…and it could happen today.

On January 4, 2011, gold bullion fell $44.10 U.S. per ounce. The next day, January 5, 2011, it fell another $5.10 an ounce. This morning, as I write this issue of PROFIT CONFIDENTIAL, gold bullion is down another $9.90 an ounce. In three trading days, we are looking at a $59.00-an-ounce haircut for gold bullion.

In late 2010, on these pages, I wrote that I would be a buyer of gold-related investments if gold bullion reached $1,370 U.S. per ounce. The price of gold bullion reached a record high of $1,421 an ounce on November 9, 2010, followed by $1,421.60 per ounce on December 31, 2010. At today’s price, I can buy gold investments at $50.00 an ounce off the record high, which I consider a deal.

So my first step will be to buy more gold investments today if gold remains under $1,370 an ounce. My next step will be to buy more gold investments if gold gets down to $1,320 (which is a seven-percent correction off its high). Hence, I’m buying gold investments on dips on the prices of gold bullion. Unlike many other advisors, I see corrections in the price of gold as an opportunity to buy, not bail. This strategy has served me well for almost 10 years now.

My gold bug readers may find the following chart interesting. It is the close of the price of gold bullion at December 31 each year going back to 2002 (the year I really turned bullish on gold). I publish this chart in January of each year for the benefit of my readers.

Date Closing Price of Gold
Bullion per Ounce
Dec. 31, 2002 $348.00
Dec. 31, 2003 $416.00
Dec. 31, 2004 $438.00
Dec. 31, 2005 $519.00
Dec. 31, 2006 $638.00
Dec. 31, 2007 $838.00
Dec. 31, 2008 $889.00
Dec. 31, 2009 $1,097
Dec. 31, 2010 $1,421

In this business, they say “Don’t fight the tape,” also known as “The trend is your friend.” The above trend has been an investor’s dream for almost 10 years running. I intend to continue profiting from the trend of rising gold prices.

Michael’s Personal Notes:

Investors often ask me what news sources I follow each day to keep up the stock market. Do I watch the business TV stations like CNBC or Bloomberg or listen to them on the Internet or in the car? The answer is no, I do not follow the investment news on an hourly or even daily basis.

Why? Because a trend takes time to develop. Sure, I follow the economic news closely. I read three major business newspaper a day and I have my favorite Internet sites (like everyone else) to get more in-depth economic reports. But follow the markets on an hourly or even daily basis and you are no longer an investor; you are a trader.

The events that led to the real estate crash of 2007 took years to develop. Similarly, the events that led to the credit crisis of 2008 took three years to develop. The stock market low of March 2009? Well, that took two years to develop.

Stock market and commodity trends take months and years to develop. What happens hourly, daily or even weekly does not lead to a sustainable trend an investor can profit from. I’ve always made money looking at the overall, longer-term trend actions of the economy and how they relate to the stock market. In other words, I don’t sweat the small hourly, daily or weekly stuff. Neither should my readers.

Where the Market Stands; Where it’s Headed:

Yesterday, I “blew the horn” on the market and announced that I’m turning bearish on stocks as we start off 2011. A group of sentiment indicators we follow are flashing red, as too many investors and advisors have turned bullish on the stock market. If it were not for the outright expansive and unheard-of generous monetary and fiscal stimulus the government has in place, I would be outright bearish.

But the trend is your friend. Since March of 2009, I have been saying that we are in a bear market rally, and I continue to hold that opinion. Until we have confirmation by the stock market to the contrary, and aside from the fact that I’m turning short-term bearish on the stock market, in the immediate term, the bear market rally that started 22 months ago still has life left in it. But investors should tread carefully.

What He Said:

“When property prices start coming down in North America, it won’t be a pretty sight, because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It’s only a matter of logic, reality and time.” Michael Lombardi in PROFIT CONFIDENTIAL, June 23, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

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