Friday, November 27, 2009
Hey Gold Bug - Are You Feeling Panicky?
Because the paperbugs are going to have a field day over the next several days. The Gold correction has started with a vengeance. Look for paperbugs to provide Bloomberg with quotes on how the Gold bubble has popped, commodities are toast (as if that's relevant to the oldest global currency known as Gold), the Dollar is king again, blah, blah, blah.
This is a normal and healthy correction that has begun in Gold. If you haven't been here before, Gold corrections are not for the faint of heart. This one's starting out sharp and nasty. I think the stock bear has awoken from his/her slumber. Gold is different than the stock market. Gold is not just an anti-dollar play. Gold is a safe currency that yields the exact same as U.S. T-Bills (i.e. zero) but without the built-in depreciation risk.
Here are some "scary" corrections in Gold. First, from late 2005:
Here's one from late 2007:
Let me go out on a limb and predict the late 2009 correction. I'll say it will be about 9% or so over about 1-2 weeks or so (call me crazy!):
Now, let's put things in perspective with a 10 year log scale daily candlestick chart for Gold:
Corrections are necessary. The bull doesn't want you on its back. The paperbugs are going to be out in force trying to scare people out of their Gold positions, mocking Gold and speaking of bubble collapses from a simple multi-week correction that is a necessary part of any bull move. Corrections are buying opportunities. The Gold break-out past $1000 was not a joke in my opinion and not a head fake. Gold stocks are going to get whacked here transiently. This is an opportunity to buy lower if you're a Gold stock bull so that you can sell higher later. Don't be afraid, be patient and be ready to pounce on the Gold (or Gold stock) that others throw away in fear.