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Below
is an important question from a dear reader and my response to it.
Warren,
Came
across your most recent article ,Christmas Comes Early For Precious Metals Buyers,
on Gold Seek. I really enjoyed the article and signed up for your free
newsletter today. I agree with with most of what you said in the article. But
what happens if the dollar continues to go up,which is a real possibility. It
could easily go over $.80 ,wouldn't gold really take a big hit. I've forwarded to you an article by Clive Maund,
who paints a pretty negative view of gold ,etc. If you have the time could
you look it over and give me your thoughts on his article.
Robert
First
off I’d like to say that from my limited knowledge of Clive’s
work I do know he is an excellent analyst who perhaps doesn't consider well
enough the GATA argument as well as arguments on subjects such as government
manipulation or even private companies intervening or hedge funds
etc... Please don’t send me copious amounts of articles to
discredit that statement, it’s just what I think about his great work
from the very limited knowledge I have of it.
Thanks
to Robert for the great question and chance to give my viewpoint on this
matter. In the December 21, 2009 article “Christmas Comes Early For Precious Metals Buyers”
I mentioned I though the downside for gold would be $1,075 which in hindsight
looks to be a pretty good call. Not to pat my own back, after all, even
a broken clock is right twice a day. It’s to point out that
understanding potential aberrations due to manipulation or regularly
occurring false signals is an integral part of understanding the gold market
in particular.
Reading
through Clive Maund’s article I don’t quite see where you get any
real bearishness from it. Many of the words he says echo mine or vice
versa. I do believe gold has bottomed and think we will work our way
higher reasonably quickly to break above the recent high of $1,226 and on to
about $1,500. I wrote extensively about how, in all of gold’s
breakouts during this bull market, the price retraces the breakout to about
the 50% level before moving back up, then roughly doubling the initial
leg’s move, in my December 12, 2009 article It’s Only Halftime.
That
makes the recent move from $1,000 to $1,226 only half the move, and that is
being conservative since we are now solidly into the second phase of the bull
market, for sure this time.
So
let’s not nitpick Clive’s work here, from the article above it
seems right in line with my work, especially when he says about gold;
“With respect to the trendline failure we should note that it is a
favorite trick of Big Money to execute trendline failures in order to run
people out of their positions before prices reverse sharply in the other
direction.”
 
Showing
the ten year monthly chart of the US dollar paints a very bleak
picture. A rise to 80, at the 38% Fibonacci retracement level, would be
quite healthy actually, but a rise to 81.87, the 50% Fibonacci retracement
level, would be even better and likely not see much of a lower gold
price. A move to the 83.73 level would be even better yet, and take the
extreme bearish levels down a notch or two.
However,
compared to the ten year monthly gold chart you can see that both gold and
the US dollar have indeed traded in rough tandem but the US dollar has been
much more volatile while gold has nearly always tended higher. To see
this picture side by side seems to fly in the face of what you hear on a
daily basis in the mainstream media who say gold is risky and too volatile.
I
give my thoughts on this on a weekly basis for free. But when it comes
down to it you are the one who must choose and I think the two charts above
show clearly where the best and safest investment has been and I believe will
continue to be when comparing the two. For more details you can sign up
for the free weekly letter by following the instruction below or visiting one
of the great sites who publish my work.
One
of my favourite and simplest ways to show this relationship and how it has
performed over the last decade is using the perfcharts at stockcharts.
Quite simply, they trade in reverse correlation but gold gets much more bang
for the buck with volatility I can live with. Can you?
Gold
can never go to zero. The dollar is well on it’s way.
In
my free, nearly weekly newsletter I include many links and charts which
cannot always be viewed through sites which publish my work. If you are
having difficulties viewing them please sign up in the left margin for free
at http://www.preciousmetalstockreview.com/
or send an email to warren@preciousmetalstockreview.com
with “subscribe” as the subject and receive the newsletter
directly in your inbox, links and all. If you would like to subscribe
and see what my portfolio consists of please see here.
Until next week
take care and thank you for reading.
Warren Bevan
www.preciousmetalstockreview.com
Also
by Warren Bevan
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