By GeorgeManiere
November 04, 2011 5:08 AM
November 04, 2011 5:08 AM
We may own stocks we are writing about and may have position in these companies. We are not providing any investment advise on this blog and there is no solicitation to buy or sell any particular company here. We are simply sharing our thoughts for educational purposes only. Always consult with your qualified financial adviser before making any investment decisions.
“Allmen see these tactics whereby I conquer, but what none
Can seeis the strategy out of which victory is evolved.”
--Sun Tzu—
TheDowJones industrial average jumped 208 points Thursday after Greece scrapped areferendum on unpopular budget cuts and the EuropeanCentral Bank unexpectedly cut interest rates. It was the second straightday of big gains in the stock market.
TheEuropean Central Bank surprised markets by cutting its benchmark interest ratea quarter of a percentage point, to 1.25 percent. The bank had increased itskey rate twice this year, but that was before MarioDraghi took over as head of the bank this week. The announcement sentstocks higher as investors hoped that lowering borrowing costs would helpprevent a recession in Europe.
Buyingintensified in the early afternoon after GreekPrime Minister George Papandreou abandoned his effort to put package ofausterity measures to a public vote. A “no” vote could have caused chaos in theEuropean and global financial system by leading to a messy default on Greece'sdebt.
Investorsand other European nations were shocked by Papandreou's announcement Mondaythat he would call a referendum on a financial rescue package worked out justlast week after months of negotiations between Greece and its internationallenders.
TheDow lost 573 points the first two days of this week as investors feared thatEurope's plan to preserve its currency union was in jeopardy. Markets in theU.S. and Europe have been highly sensitive to headlines out of Europe asleaders there try to avoid a financial calamity. Investors have become fatiguedas various efforts to resolve the situation seem to continually run intotrouble.
Todayit looks like a deal in Europe is more likely and that's making the marketpositive, but who knows what people will think tomorrow.
**************************************************************
Before I begin my essay ongold I must add that if Greek Prime Minister George Papandreou had put his package of austeritymeasures to a public vote, a “no” vote could have caused chaos in the Europeanand global financial system and gold would havegone parabolic. By abandoning his effort to put package of austerity measures to apublic vote and making it seem like it was the will of the government gold willsimply continue to rise.
Gold is again being seen in Greece as anessential store of wealth, hedge against inflation and safehaven asset. This is not surprising given the political game of chickenthat has been played for the last several weeks.
The fact that gold cannot default or gobankrupt unlike every single corporation, bank and government in the world ismaking it the safe haven of choice again. There is also the important fact thatunlike currencies and bonds, gold cannot be debased by bankers and centralbankers.
Gold hasmarked a key Fibonaccipivot point and may now begin a new wave higher, potentially reaching $1900before year-end while on track to surpass the $2000 level in 2012.
It's been several weeks since I've written about gold andwe have had a wild ride since the $1910-$1920 highs in August. At thetime, I wrote a major correction was imminent and we witnessed a $208 drop thattook place over just a few days. We covered our short at $1725 and thengold immediately rallied back to a double top at $1920. It then corrected backas scripted to 1531.
Thatpullback to $1531 qualifies as a Fibonacci retracement of the 34-month rallyfrom $681 to $1920 and would also qualify for a price low for a fourth majorwave correction.
Myinitial targets for the gold pullback were $1480-$1520 if the $1650 area wasviolated. Most recently, we have seen gold run up to $1681 (anotherFibonacci resistance zone) a few times and then back off to the low $1600's.
Withthe recent push over $1681, we can now confirm the fourth wave is over at the$1531 lows and the fifth wave is likely in the very early stages, but beginningto build steam.
Iwill say that we want to make sure the $1650-$1680 areas are defended by goldon any pullbacks in order for this forecast to remain valid. During thisfifth wave up, eventually we should see the $2380 range in gold, but it willnot take place overnight.
Inthe next few months, I am looking for gold to attack the $1900 range, possiblyeven by year end, and then attack the $2000-plus range in 2012.
Aswritten above, with all of the macro events in Europe changing on an almostdaily basis, the whipsaws in both the precious metals and equities markets aredifficult to forecast and trade for most investors. However, gold has beenmoving in defined Fibonacci and wave patterns for ten years now and if I'mright, has about three years left in a 13-year bull cycle.
Belowis the updated weekly chart for gold. You can see prior lows as theyrelated to oversold indicators, and where we just came off the $1531 lows andits Fibonacci pivot along with the oversold indicators below.
Lookfor gold to attack $1775 first, then $1800, $1840, and $1900 in the coming sixto ten weeks or so.
The sharp recent correction in gold does not erase the long-termfundamental drivers that are still in place and likely to push the metal higher.
So that begs thequestion how does the retail investor get into the gold trade now?
Well a lot of this comes at a time frame when many people and muchthe public was underexposed to the gold move, from the move up from $1200,$1300, all the way to $1925.
The sense is that gold will move too far too fast, and as aresult, people didn't want to chase the move. Well, the issues that helped goldrise are still very much in play.
There is still a lot of question and concern about debasement ofcurrencies around the world. Overall, in terms of what various central banksare doing, that's still very much in play, and overall, peripheral andsovereign debt concerns have not been solved either.
So we look at a way to have a real currency, a solid currency,gold still meets all those needs despite a short-term technical correction.
In conclusion, I think that every retail investor needs to have20% of his portfolio in gold and silver. What they need is exposure to preciousmetals. The biggest threat to anyone in retirement is inflation. Especiallywith the debasement of the US dollar, this is still very big story. I suggestthat every retail investor buy something like the SPDR Gold Trust (GLD), buy the iShares Gold Trust ETF(IAU), buy the iShares Silver Trust (SLV), Buy Newmont Mining (NEM), Goldcorp (GG) because besidesowning the underlying commodity, you want to own the companies that mine andproduce that commodity as well.
That gives you somewhat of a diversified exposure,but buy owning the Market Vectors GoldMiners Trust (GDX), which is the gold miners ETF that consists of the top 30gold-mining stocks out there, you get all of the diversification you will needowning the mining stocks in one simple ETF.
One thing is for sure, is the time to atleast put your toe in the water.
Originally posted here.
We're Loving
