We are living history as I write this article.

Gold is now setting new all-time high prices daily. Since the 28-year high of $850/oz. was eclipsed in March 2008, the gold price has been surging like a kite in a gale.

The bull market in gold has motivated investors to call us every day, with questions such as, “Is it too late to buy gold?” “Should I wait for a lower price?” and, “How high will gold go?”

They are all are good questions. Where do we find good answers?

Today we have a multitude of sophisticated methods and expensive equipment to help us gather information. There are faxes, telephones, computers, charts, research analysts, the Internet and when all else fails, there is always a W.A.G. (wild-ass guess).

Together, my partner and I have nearly 80 years of experience in the precious-metals markets. So you can be certain we do have an opinion. But one thing I have learned is, just when you think you’ve got gold all figured out, it can fool you.

So, not to be fooled, we need a course to follow to analyze this new bull market. And, we need a plan rather than just throwing money at the market.

In ancient times men would use the stars to guide them, get their bearings, and plot a course from one location to another. Then, the compass was invented. Now many of us rely on our helpful Garmin or Tom-Tom lady to guide us, thanks to global positioning satellites (G.P.S.).

We need a G.P.S. for this bull market in gold.

When analyzing the gold market (or any market, for that matter), there are three primary factors to consider:

1. Fundamentals – what are the underlying economic factors;
2. Technicals – what do the charts say; and,
3. Emotions – don’t let your heart overrule your brain.

When it comes to buying and selling, emotion is usually wrong. But listening to your heart is a common mistake. The solution is to think things through ahead of time. By pre-planning, we can eliminate a knee-jerk reaction and negate emotion.

Let us first look at the fundamentals of gold.

The underlying economic factors in play today are not all that different from 1980. Remember monetary growth soaring, unemployment climbing, gold and silver hitting new highs and other signs of an economic malaise?

Then Paul Volker was made Chairman of the Federal Reserve and he slammed on the brakes of monetary expansion. For the next 20 years we were told things were getting better, despite a real estate and stock market meltdown in 1987 and the first Gulf War in 1990. But, were things really getting better?

To make sure the economy was well-lubricated, under Alan Greenspan the Fed shifted gears and, for the next 15 years, oversaw record growth in the money supply. The theme song became “let the good times roll.” And they did, with a boom of monumental proportions.

The old problems under Nixon, Carter, Reagan and Bush 41 were not solved, merely postponed. All of them would rear their ugly heads again in the new millennium.

During the administration of Bush 43 we saw the 9-11 attacks, passage of the Patriot Act, creation of Homeland Security, Gulf War #2 (Afghanistan and Iraq), the subprime lending fiasco and failures in the securities, banking, insurance and automotive industries. Government’s answer was to flood the country with trillions of dollars in bailouts and takeovers. Do you see things getting better yet?

We are now in the eye of a perfect economic storm. There are a multitude of underlying economic factors providing fuel to the current bull market in gold.

Unlike 1980, when gold peaked at $850/oz., it was primarily a U.S. dollar phenomenon. But in 2009 gold moved up against all major currencies – the U.S. dollar, British pound, Swiss franc, Japanese yen, Euros, etc. What we are witnessing is a subtle but definite exodus from fiat currencies.

Rising gold prices and a falling dollar have led many central banks to decrease their dollar exposure. Both China and India, for example, have announced that they have become major purchasers of gold. We expect this trend to continue.

When you look at the fundamentals, things are definitely not getting better for the U.S. dollar.

So what does technical analysis tell us? There is a cardinal rule when it comes to technical analysis or charting:

What has been resistance on the upside, once breached, becomes support on the downside.

The old all-time high for gold was $850/oz., set in January of 1980. That 28-year resistance point was not eclipsed until March 2008. The low from 1980-2008 was $250/oz.

Once gold exceeded $850/oz. in March 2008, it ran, almost non-stop, to a new all-time high of $1,007/oz. It then corrected down to $850/oz. Therefore, to a chartist, $1,007/oz. became the new upside resistance and $850/oz. became the new downside support.

Gold has now decisively broken through the “new” resistance of $1,007. As I write, it is 20% above that old mark. This means that $1,007 is now the support level for this new gold bull.

So after examining the factors, fundamentally and technically, for the current bull gold market, let us ask that question: “Should I buy gold now at record highs, or wait for a dip?”

Here is our G.P.S. on the golden bull. This is not a normal market where you have a surge forward in price followed by a 50% pull back.

In a normal market, dollar-cost averaging (investing the same dollar amount every month, for example) is usually a good technique. You buy less when the price soars and more on dips, but averaging only works when you expect volatility on the upside and weakness to the downside.

But let me say it again, this is not a normal market. When you have a market that is trending up, averaging only guarantees you a higher average price.

What about waiting to buy on that elusive “dip”? That could mean seeing gold march steadily higher to $1,500/oz., then “correcting” to $1,400. It could even mean gold approaching $2,000/oz., then dipping to $1,800. In other words, any dips could occur at much higher levels than we’re seeing today.

Let me give you some other reasons why we believe gold could rise a lot further before we see any significant correction.

1. In constant 1980 dollars, gold should be $2,300/oz. today.
2. Gold is appreciating against all currencies.
3. The U.S. needs foreign capital - lots of it - to fund their debt.
4. We have had a record increase in the money supply.
5. A record $2-3 trillion in bailout money.

The bottom line is that our G.P.S. for gold is saying to buy now. Yes, that’s essentially the same thing we’ve been saying for years as gold has marched from under $250 to over $1,000. We were right then and we expect to be proven right again.

Glen O. Kirsch
Executive Vice President

source HERE

Posted by Mr Thx Sunday, December 6, 2009


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Sekapur Sirih Seulas Pinang

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Alor Gajah, Melaka, Malaysia
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