Gold is taking us on a roller coaster ride that I’m sure has many people concerned. However, long-term gold bulls can rest assured that this is not the type of price action typical of bubbles; when bubbles pop, they don’t retest highs for many, many years. Gold on the other hand is making new highs, correcting, then making new highs. If anything, the price action suggests a big thrust upward once we get this correction behind us.
I sold some of the positions I opened up at $1330 on the break below $1400. As most of you know, I have a big core position that I never trade. Then I have a position I trade to try and capture as large a portion of intermediate term moves as possible. Although my strategy has outperformed a pure “buy and hold” approach, I am the first person to admit that you must be disciplined to trade these market vacillations. I will not chase moves to record highs or rush to buy on corrections. Patience is a golden virtue to have as an investor.
I’m waiting for some more bearish sentiment to appear before stepping back in. I am still not seeing much buying on weakness in the miners, so it would be prudent to sit this out for now. I will most likely be buying between $1320 and$1350.
One of the hardest things to learn is the ability to successfully trade unexpected scenarios. While I am supremely bullish on gold, I am confident I can keep my head if we have a dramatic move to, say, $1000. No matter how good you are trading in the short to intermediate term, you will always be met by scenarios that take you by surprise. Take them in stride and adapt; that’s what the best investors always do.
In the long run, everything is falling into place for a monster push in gold. I’ve talked about the relationship between Federal bonds and gold. What we are seeing now is the beginning of an absolute implosion at the state level. Federal subsidies of municipal bond purchases are set to expire, and we are getting a glimpse of the real fundamental economic conditions of states. President Obama has already proposed a 2 year freeze for Federal salaries– expect this trend to continue. The whole Socialist model is crumbling before our eyes. This model has literally never worked in history.
When U.S. states begin defaulting on their debt, you will all understand that gold is not primarily a hedge against inflation. Gold is an asset that does nothing for years and years, only to rise in dramatic fashion in the shortest period of time. Gold rose over 20 times in the 1970′s, which given a similar rise from the 1999 lows would amount to a price of over $5000 today. But I would submit that even a comparison to the 1970′s is not enough because we are talking about sovereign defaults on a global level now. I personally am targeting $2500-$3000 for a number of reasons, but understand that by many objective metrics, $5000 gold is a conservative estimate.
I will continue pounding my fist on the table on gold until we see the amazing rocket launches. Only then we you all know who really had their heads in the sand this entire time.