Sunday, June 26, 2011

Longer-Term Gold Thoughts

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I enjoy watching the daily gyrations of the markets. As someone who trades in the markets as a means to achieve speculative gains, the daily noise can seem important. But I always try to keep the longer-term perspective in mind, particularly in relation to Gold. Looking upon a monthly chart of Gold, it occurred to me that we may be about to trigger another long-term "buy" signal. The month isn't over yet, but if we close down for the month, this signal would trigger. Not saying we will, as a lot can happen in a week, but here's an 11 year and 6 month log scale price chart of Gold ($GOLD) to show you what I mean:

There hasn't been a period of more than 2 months in a row of Gold prices going down since the secular bull market started. This is an amazing statistic and there is absolutely no guarantee that this fact will remain true in the future. However, in such a strong bull market the point is that you should just keep accumulating physical Gold on price dips. Gold is no longer cheap in nominal or even relative terms, but it is going to get a lot more expensive before it is re-introduced into the international monetary system down the road.

My favorite chart, the Dow to Gold ratio, is also biding its time before the next gnarly plunge in this ratio, which should be a doozy. Here's a 15 year log scale chart of this ratio ($INDU:$GOLD) to show you what I mean:

Since I am looking for a relief rally in risk assets over the next month or two, it may take this long before the Dow to Gold ratio turns down in earnest. But the swinging pendulum of history is not done with common equities or the Gold sector yet, as each will continue in it's current path: down to flat for common equities and up for the Gold sector.

I like Gold and Gold stocks at current levels, but particularly the beat-down Gold stock sector. Specific trading recommendations and more in-depth analysis reserved for subscribers. Don't lose the forest through the trees - Gold is good, common stocks are bad.

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