Gold's stellar performance set to continue in 2010
As we enter the beginning of another year, and wonder what to expect for the year regarding the different markets, I for one am extremely bullish on gold. Last year was a great year for the precious metals, gold, silver, palladium and platinum with gold and silver increasing in value by 26% and 57% respectively. For the last nine consecutive years, gold's performance has been one of the best out of all the different asset classes. Despite this, there are analysts who continue to denigrate gold as an investment. Obviously they don't have a clue about precious metals and fail to see what upward trend or bull-market is.
There was a time when very single central bank, bullion dealer and investment advisor wanted to sell gold, but since 2001 the fundamentals driving the gold price have changed. And if they still can't see it after nine years, and if you are taking advice from these individuals all I can suggest is find someone else. Even though gold has continued to perform well each year since 2001, this bull market is far from over. So, how long can this market last? I believe at least another 5 to 7 years if not more. Historically, commodity bull markets can last between 15 to 25 years, so if this market was to last only 15 years, that means there is still another 6 years to go. Of course it is almost impossible to accurately predict the duration of these major moves and the ultimate high in prices, but looking at the fundamentals that began this move in gold, they all look extremely positive meaning the probability that we will see gold to continue to move upwards is a lot greater than the chances of it plummeting back down to US$800.
On Friday, 08, as the markets around the world awaited the most important economic indicator, namely the US non-farm payrolls, gold held steady and off its lows posted at the beginning of the year. Then, when these figures were released and showed a loss of 85,000 jobs, which was worse than analyst's expectations, the markets reacted accordingly. The US dollar quickly lost some 100 pips against the Euro, and gold shot up almost $20. While I think the move in gold was perhaps a little over-done, what it shows is that this market wants to move higher. On Wednesday, when the US Energy Department, released its weekly crude inventory report, and in spite of a bearish inventory report, crude ended up higher.
Looking at the dollar index, the break of 77.86 support level suggests that a short term top is in place at 78.45 and pull back should be seen in near term to around 76.
While numerous analysts suggest that gold is in a bubble, the only bubble I can see is in bond prices. And, to me the 2009 surge in US Treasuries represents a bubble that will soon burst. As we know, in order to combat the worst recession since the World War II, the Fed reduced the policy rate to an unprecedented low level and implemented a series of quantitative easing policies. I am certain that things would have been worse if the Fed and other central banks had not stepped in with their various stimulus packages, but as a consequence these monetary policies have created huge fiscal deficits and the status of the US dollar as the worlds' reserve currency is now at risk. What is so difficult to comprehend about this? You cannot spend your way out of a recession, and you cannot create an abundance of money out of thin air without debasing your currency.
There is no doubt in my mind that as we progress through this year, we as we see global economies slowly recover, we will see further downgrades of numerous countries, we will see continued buying of gold from various Central banks, investors will continue to diversify their portfolios into gold via purchases of bullion and gold exchange traded funds, and the dollar will resume it's downward trend.
Almost as soon as the non-farm payrolls figures were released, the gold price soared US$20 on the back of a weakening US dollar. It looks as if gold has corrected from after posting a recent low of $1075 and the upward trend is about to resume. However, there is a good chance that gold may trade sideways between $1140 and $1116 before breaking through $1140. I believe that a re-test of the previous high of $1225 is now imminent.
About the author
David Levenstein is a leading expert on investing in precious metals .He brings over 29 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He is also a regular commentator on www.kitco.com and www.mineweb.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
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Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.