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Okay, Gold is Up $100 So Far This Year – Now What?
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(April 17, 2006) Gold prices began 2006 around the $513 level, and now threaten to spike into parabolic territory. A new crowd of potential buyers see that gold has a bright future, and are suspicious of their weakening dollars, but they're starting to fear there won't be a good correction.
So, you’ve been thinking about gold. It looks attractive, in more ways than one. It provides a safe haven against the woes that seem to be on the horizon for the dollar. It’s even starting to get mentioned increasingly in the business and financial media, after a decade in which they didn’t even give it screen space in the corner. It’s been in a bull market since April of 2001, or so you have found out recently. Of course, you weren’t thinking about gold back then, your attention having been focused at that time on your devastated stock portfolio.

No, you first noticed gold last year, when it traded in the mid $400s, and people were talking about it possibly breaking the $500 level. Gold even started to get a little play in the news. Your broker, your banker, your financial advisor, your favorite investment services and servants, all told you that gold was just a commodity, a flash in the pan, a dead-end escape for the financially unsophisticated, strictly an inflation fear indicator, an obsolete asset class, a monetary anachronism, and an ‘investment’ only suitable for foreigners and the fringe element.

Nonetheless, the idea of gold stuck in your mind. I’ll wait for a good correction, you thought to yourself. Gold’s been around a long time, and I should probably have some, what with the deficits and the rate that they’re cranking out dollars like there’s no tomorrow.

But, gold rose pretty steadily during the fall of 2005, finally reaching the $500 level on the first day of December. You noticed it then again as it made headlines, but it was so close to the end of the year, you had holiday and year-end planning to do, and you figured, well, as soon as it breaks down maybe to $475 again, I’ll start to accumulate some. Surely there’s a correction coming pretty soon.

Of course, January saw gold prices start around $515 and run straight up from there, and then, after clearing $570 (a 24-year high) in the first week in February, prices wobbled for four weeks, and touched down into the $530s momentarily in the first week in March.

Looking back, the March 10th trading at $535 actually signalled the most substantial gold market correction since the Spring of 2004. At that time, on April Fools Day, gold traded at a 17-year high, and over the next six weeks gave up $50, trading down to the $375 level before beginning a wobbly climb back over $400 in September of that year.

On May 21st, we wrote here, “Now that the gold price is meandering around at the sub-$400 level, it’s becoming even more attractive to take a position in the world’s favorite precious metal…Today, gold is some 10% cheaper than it was six weeks ago, so there’s an argument for buying on the dip. ” Six months later, gold reached $435 and hasn’t traded below $400 since.

So, for those of the bargain-hunting persuasion, this year’s 3/10/06 low of $535 was the most recent best chance to get gold on the cheap. Since then, gold prices have put on an $80 demonstration of sheer market strength, a power attributable to many factors, momentum being one, gold’s recent correlation with crude oil prices being another, and most recently, a lot of noise having to do with the United States supposed intentions in light of Iranian nuclear ambitions.

In short, the gold market over the past six months or so has been a roaring success, with a consistently bullish price action that has not allowed new entrants much in the way of buying opportunities. In a market lacking any sustained, defined price ‘dips’ to buy into, the successful players in this recent gold market are those who simply held their nose and jumped in. Others are still standing at the edge of the pool, high and dry, holding onto a vague intent that might have cost them the ‘too-high’ price of $485 when first conceived, and today would cost them nearly 25% more.

Of course, there will be corrections in the gold market to come. However high you may think that gold prices will end up this year, or this decade, or the next decade, there is no doubt that gold will have its gloomy days, periods of relentlessly falling prices, inevitably leading to a spreading sense of despair about this beautiful and ridiculous, useless and irreplaceable, obsolete and timeless precious metal.

Trying to predict gold’s next significant correction is a fool’s game. If you need certainty in these markets, then you need to seek help, either from a market technician or a mental health professional. But you don’t have to be a railroad engineer to know not to stand in front of a train going at full speed.

 

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