Is There Danger in this Gold
Run?
Boris Sobolev
Nov 5, 2007
While many market observers are waiting for a correction, gold
is pushing relentlessly higher. After it powered through $700/oz,
pullbacks on gold became short and shallow. A correction in gold
will no doubt come, but we are not willing to bet money on how
soon it will occur and how serious it will be.
The weekly chart of gold below
shows an overbought condition but a year and a half ago gold
was far more overbought time-wise and price-wise. By following
the 2003 and 2005 gold rally patterns we can expect a few more
months of handsome gains before this rally in the secular gold
bull market is over. Any correction at this point would be a
healthy sign.
What if, however, we are wrong
and gold is now, in fact, making a final spike to its all time
high of $850 or higher. The aftermath, as after the top in 1980,
could be severe and it would be time to sell? Is this
a real possibility?
No, the situation today is
completely different:
- In August 1979, Paul Volcker
became the chair of the Federal Reserve and start to fight inflation
by radically raising interest rates. Today, Chairman B. Bernanke,
in an effort alleviate the pain in the ailing banking system,
is aggressively lowering interest rates.
a
- 28 years ago, the United States
was the biggest creditor nation in the world. Now, the opposite
is the case - US is the largest debtor. This, along with the
Fed policy is causing the dollar to fall to historic lows.
a
- Gold may appear to be overextended
but this is not the case in real terms. In fact, gold should
be around
$3,000/oz in order to reach its inflation adjusted highs.
Only then will there be a real reason to worry about a possible
end of the gold bull market.
We reiterate that the gold
bull market has a long way to go. Don't be afraid to miss the
boat - there are many
opportunities ahead. Hold your positions and buy the dips.
Boris Sobolev
Denver, Colorado
email: Contact@ResourceStockGuide.com
website: www.ResourceStockGuide.com
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