With what is happening with the price of gold these past few days it is
imperative to take a look at the long and short of it all (the trends, that
is). In doing so it shows that we are still very much in a long-term bull
market but in a short-term (yes, short-term) bear market. Let's take a look
at some charts that clearly outline where we are at and where we could well
be going.
Physical Gold
As can be seen in the graph below the 70s experienced 2 major bull markets
and an 18 month bear market in between while continuing to trend upwards.
Right now, I believe we're at a period not unlike early 1975. Then, as it
is now, the uptrend is still intact. True, gold has dropped below the 28 week
(200 day) simple moving average but is still above the 65 week moving average
as can be seen in the weekly graph for gold as of December 14th, 2011:
A look at the chart below of the daily close of the price of gold over the
past 3 months clearly shows that an excellent way to trade gold is to buy and
sell on the basis of the 20 day Exponential Moving Average. EMA is a moving
average that gives greater weight to more recent data (in this case the past
20 days) in an attempt to reduce the lag of (or "smooth") the
moving average.
Gold Miner Stocks
No discussion about gold would be complete without taking a look at the
performance of the HUI index which consists primarily of large and mid-cap
gold producers. As the graph shows below it is struggling terribly
underperforming equities in general and gold by a wide margin. Be that as it
may, most analysts believe it is just a matter of time (Goldrunner writes in Goldrunner:
Gold, Silver and HUI Index to Bounce Back to Major Highs by May 2012
that the HUI could almost double in the next few months - see here
for his rationale) before the precious metals mining (and royalty streamers)
sector closes the gap as a result of much healthier bottom lines.
Gold Miner Warrants
If you agree that the gold and silver mining sector has nowhere to go but
up in the next few months serious consideration should be given to investing
in the long-term warrants that are offered by a few of the constituents of
the HUI. Warrants generally enable an investor to take a similar position in
a company for approximately 60% less dollars deployed and realize gains often
double that of the associated stock. No warrant ETFs exist but a look at my
proprietary Gold and Silver Warrants Index entitled Gold
and Silver Warrants: An Insider's Insights (see here)
will provide you with major insights into this extremely small and unknown
investment option.
Conclusion
When I look at the charts above it is obvious that gold has just undergone
a pre-Christmas sale of epic proportions which I think is probably the last
opportunity to get in before it continues in trend upwards. The financial
crisis in Europe has chased people out of gold and equities hitting gold
stocks with a double whammy making for an ideal entry point at this time. The
long-term gold and silver warrants have been hit hard making them the buy of
the decade.
The above being said, who knows what nasty surprises the powers-to-be
might throw our way in the months to come in 2012 but whatever they might be
gold and silver, in all its investment forms, should do very well long-term,
thank you very much.
