Reduce Leverage, Maintain Positions, Buy More Gold on Minor Weakness
Should you consider selling into any period of strength during the typical summer weakness? No, there are a number of reasons to continue holding gold during this time period. [Let me detail them one by one.] Words: 734
So says David Urban (http://dcurb.wordpress.com/) in an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted 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 re-posting to avoid copyright infringement. Urban goes on to say:
1. Delay/problems Passing U.S. Government Budget
The 2011 budget was finalized six months after the start of the fiscal year and given the current climate I believe that the odds of the 2012 budget passing on time are not good. A bill to extend the debt ceiling has yet to be passed and the Congress and President continue to haggle over the best economic course for the country. Will the US embark on a road of spending cuts and slower growth or continued stimulus and a collapsing currency?
2. Upcoming 2012 US Presidential and Congressional Elections
Despite calls by constituents for meaningful spending cuts, Congress continues to spend and with an upcoming election politicians will need to show their constituents that they are creating jobs by approving new entitlements.
3. Rebuilding after Disaster in Japan
Plans have been made to rebuild the affected areas which mean increased Japanese government spending funded by JGB’s. This will be bullish for commodities across the board.
4. Problems Affecting the PIIGS Countries
Problems surrounding Greece remain unresolved as it appears the EU/ECB/IMF will kick the proverbial can down the road. As Greece begs for a bailout it is quickly forgotten how they manipulated their debt numbers in order to enter the EU. Any new bailout of Greece will certainly draw cries from Ireland for a restructuring of their agreement. The banking system in Ireland continues to have problems while Spain moves towards a bailout and Italy moves onto the radar screen.
5. Rising Inflation in Argentina and Brazil/Sovereign Problems in Peru and Bolivia
Argentina has national elections later this year and inflation is already rising at rates topping 25% with the government threatening to shut down private datakeepers who show the true statistics.
Brazilian real estate continues to rise at double digit rates and the central bank remains entrenched in a rate rising cycle attempting to keep a lid on inflation and real estate prices from going parabolic.
Humala’s victory in the Peruvian presidential election is troubling. His past comments regarding windfall profit taxes on mining companies and socialist connections will trouble foreign investors until they are shown otherwise.
Bolivia continues to frighten investors with rumblings surrounding the possible nationalization of silver properties.
6. Buying of Gold by Central Banks
So far in 2011, Mexico has purchased 93.3 tonnes, Russia added 22.5 tonnes, and Thailand increased gold reserves by 9.3 tonnes. The continued purchase of gold by global central banks is extremely bullish since gold will be taken off market and placed into strong and stable hands.
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Investors should not consider going short gold because it only takes one small bit of news to turn the market higher. The surprise announcement that the Indian Central Bank purchased 200 tons of gold from the IMF in 2009 touched off a 20% rally in one month.
What to Do?
While I am extremely bullish on the prospects for both gold and silver in the long-term, investors need to practice risk management with regard to their positions. This would be a very good time to reduce leverage with respect to bullion over equities while maintaining core positions and looking for attractive entry points over the summer as any selloff in gold will be limited in nature as the $1400-1425 level is the new absolute floor for the price of gold. This represents approximately a 10% downside risk to investors.
- July Breach of Gold’s 150-Day MA Would Suggest 22% Rise by Year End http://www.munknee.com/2011/07/july-breach-of-golds-150-day-ma-would-suggest-22-rise-by-year-end/
- Gold’s Recent Price Action Suggests Ultimate Top of $5,000/ozt. http://www.munknee.com/2011/06/golds-recent-price-action-suggests-ultimate-top-of-5000ozt/
- Gold to Repeat? http://www.munknee.com/2011/07/gold-to-repeat/
- 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.