Buy Gold on the Dips and Hold On for Dear Life!
Everyone has gotten bullish on gold; now it’s time for everyone to get bearish. Gold bubble experts will now re-emerge from hiding and forecast $500 gold. The pattern is always the same: 1) gold rallies, 2) gold bubble experts predict a 50% decline in gold, 3) gold rallies about 30%, 4) gold bubble experts go into hiding. It’s always the same comedy. Words: 725
So says Moses Kim (www.ExpectedReturnsBlog.com) in an article* which Lorimer Wilson, editor of munKNEE.com , has reformatted into further edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Kim goes on to say:
Don’t Sell Your Gold!
Gold is overbought…but I will not be selling into overbought conditions, but looking to add on weakness. For the duration of this bull market, overbought conditions have led to a retest of the 200-day moving average. The 200-day currently sits at $1189, so a correction to $1250 or so is reasonable. In no way would a correction to these levels indicate the end of this bull market. A collapse to $850-$900 and we can start talking about some serious technical damage but until then, all corrections should be viewed as buying opportunities.[Editor's Note: Don't forget to sign up for our FREE weekly "Top 100 Stock Market, Asset Ratio & Economic Indicators in Review"]
Putting the Gold Correction into Perspective
Let me give people who are worried about today’s correction some perspective. Gold has gone up non-stop for the past 2 months, so a week or two of corrective activity is nothing to panic about. In fact, it is the most healthy thing that could happen at this point. I’ve always said that there are real human agents behind market movements. Steep sell-offs in gold are a product of mindless technical trading and weak hands liquidating. Those who come last to the party are the first to leave. The long-term gold bull (aka the smart money) is looking to buy on weakness. Think about it. The smart money was buying when everyone was selling. So the smart money isn’t trying to lock in 1.2% gains here; they are looking to add to hundreds of percents in profits. Think like the smart money. Give this correction some time. Be patient.
The U.S. Dollar
On a fundamental basis, the dollar is a flawed currency [and] arguments to the contrary just make no sense on a number of levels. On a shorter term basis, [however,] the dollar is oversold. I expect a counter-trend rally in the dollar that puts pressure on most asset classes. The dollar is currently rallying substantially. Taking a quick look at the charts, a test of about 80 on the dollar index is reasonable. A rally of this magnitude could easily bring the S&P back down to about 1080-1100. I’d feel a lot more comfortable adding at these levels.
The market is always vacillating, and it is the job of the objective market participant to play the odds correctly. I am just not comfortable being too aggressive on the long side; I had a lot more conviction when the S&P was testing 1030 and gold was testing $1160.
Eventually stocks and gold will go much higher, but both assets are due for a breather. Eventually I am convinced that we will see a parabolic move in gold. It’s hard to get the exact timing of parabolic moves right, which is why I always recommend building a position instead of over-trading.
I’m warning you, [however, that while] you may pick a couple of tops here and there, if you get too aggressive unloading your positions at perceived tops, you will eventually miss out on a monster rally. All the optimized gains you made will evaporate in the blink of an eye. Don’t make this mistake. This is a bull market for the ages.
Keep a level head and follow the advice of the best investors in history: buy the dips and hold on for dear life.
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
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