Tuesday, August 16, 2011

Is Gold Set To Move Higher?

Gold finished up today, closing above $1,780 per ounce.  After its big run in the last few weeks, it pulled back a little and now seems to be resuming its up trend.

A couple of weeks ago, I wrote that I don't think gold is in a bubble.  With the movement this week, not only is gold not in a bubble, but it doesn't even look like it is going to have a significant pullback any time soon.

My analysis of the economy and investments usually comes from a libertarian/ Austrian point of view.  I like to look at the facts and make judgements based on the fundamentals.  For this reason, I have been bullish on gold.  The Fed has tripled the adjusted monetary base in the last three years and the federal government is running a yearly deficit of $1.5 trillion.  These are enough reasons alone to be bullish on gold.

I am not usually a chart guy.  I don't like to look at breakout points or moving averages.  With that said, even if we look at gold from this perspective, you still can't help but be bullish.  Gold made a significant move during the recent stock market turmoil.  After hitting new highs (several times), it had a slight pullback.  The price has been consolidating and looks ready for another possible move.

Compare gold in the last few weeks with silver this past spring.  A few months ago, silver went parabolic.  It went up about 50% in a very short time span.  It went all the way to near $50 and then the bottom fell out.  Silver managed to lose 30% in the matter of days.  It snapped back to below $35 in an incredibly short time frame.

When you look at gold in the last few weeks, it looks much stronger.  It looked like it could go parabolic, but then it stopped and made a slight retreat.  It is not going to the moon in the matter of days, as silver did a few months ago.

Perhaps foreign central banks are putting a floor under the gold price and buying on dips.  There are also a lot of scared investors out there looking at gold.  Most people do not own gold, except for small amounts in jewelry.  Most don't even own much in the way of stocks.

I know a couple of people who are looking to sell some gold (mostly jewelry).  Again, if we were in a bubble, people wouldn't be looking to sell now.  I expect gold to go parabolic at some point, but we are not even close to the final run yet.  I think at some point, gold stocks will get hot.  I am not making a prediction as to the timing, but I am making a prediction (which I usually don't like to do) that gold stocks will catch fire as investors look for alternatives.

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