As I expected from an oversold market, there was a sharp rally today, especially in gold and silver shares. I believe most sell-offs should be bought, especially because it is easier to buy and lighten up at perceived tops than to go short. This continues to be my strategy in this market environment.
Gold shares have essentially traded sideways the past year while gold has risen and oil prices have fallen. This is a great environment for gold companies in production, and I expect the precious metals sector to take the lead in raising dividends moving forward.
A “panic” to the 200-day moving average in gold, or about $1530, is a scenario I would welcome with open arms. We haven’t seen a breach of the 200-day since the panic of 2008, but if it were to happen again, take advantage of it. If you recall, gold shares skyrocketed even when the rest of the market came under pressure. This kind of panic is possible with the amount of fear out there. Just remember that to have been a buyer in late 2008, you most likely had to suffer heavy losses before receiving spectacular gains.
I expect gold to continue to be volatile within a range. If you take a step back, all this volatility will look like one long period of consolidation. This is how you must think. Following the consolidation, gold will embark on a spectacular rally that will coincide with when the debt crisis hits our shores. It would be wise of gold bulls to accumulate on weakness.
Source: Gold Shares Are Attractive