Tuesday, August 12, 2008
Golden Buying Opportunity
Gold made a bottom at $651 on August 16th 2007 before rallying to over $1025 by March 2008. The anniversary of that low is less than a week away and we suspect history is going to repeat itself as gold prepares for anther tremendous rally.
Technically, gold looks to be a good buy at these levels for the following reasons:
Buying gold close to the 200 day moving average is a good strategy, buying below is even better. The RSI for gold is near 30, a classic BUY signal that rarely presents itself and should be taken advantage of.
We see gold holding at $850 on its support line, before building a base and moving much higher in the coming months.
STO is oversold, along with many other technical indicators.
And if gold is oversold, then silver is severely oversold as the chart below shows:
With silver just 33 cents from a support area which starts at $15 and goes through to $14, we view these prices as great chance to load up on silver and silver stocks. The technical situation for silver is similar to the yellow metal, except in this case poor man’s gold appears to be more oversold and is perhaps a better buy. Remember that the silver market is more volatile than gold, and tends to have sharper corrections (one of which we have just witnessed), but at the same time it can bounce back higher, and faster than gold, which makes it an excellent trading vehicle for those with the stomach to speculate on the oscillations.
This sell off in precious metals (and oil) has primarily been caused by a strengthening US dollar. Why has the greenback been making gains? Hot air. The USD has been moving up as the Fed has been talking about inflation and the possibility of raising interest rates. We must keep in mind that the Fed hasn’t actually raised rates yet, and even if they do, how far will they go? We expect any rise in interest rates to be minimal. And even if they do embark on a rate raising policy, will this stop golds accent to $2000+? Absolutely not. The most it will do is delay gold making an inflation adjusted all time high. Remember that in 1980 gold ran to $850 in the face of double digit interest rates. So even if the Fed takes rates up to over 10%, which represent a quintupling in interest rates, this will not be enough to stop gold and silver marching onwards and upwards.
We have been heavy buyers of gold, silver and the associated mining stocks on this dip. We have signalled multiple BUY signals, including some signals on gold call options and options on mining stocks, as we firmly believe that the downside is limited right now, whilst the upside has fantastic potential.
Our message for this week is simple: BUY gold and silver then hold on for the ride!