Thursday April 19, 2012
by Curtis Hesler, editor Professional Timing Service
Gold investors, it’s time to buckle up. There might be a little more to this correction, but the next up leg is close; and once prices begin to rise, the bargains will be left behind.
In a nutshell, anything under $1,600 is a reason to be enthusiastic about further purchases, and $1,550 is an opportunity to “back up the truck".
Consider the time that gold has been in this consolidation/correction phase. The $1,900 highs were set last September, and progress has been sideways in bullion since.
The current pattern and time frame is similar to what happened in 2006. After a high at the $700 level, there was a two-step correction followed by a test of the moving average similar to what we have seen with recent price action.
Another element warning us that prices are about to accelerate higher is the recent Commitment Of Traders or COT report.
The commercials (those who are typically net short as they sell their production into the futures market) have pared their short positions back dramatically.
Meanwhile, the speculators (who tend to mirror prevalant emotions and the current trend) have become overly bearish. They have reduced their net long positions as low as we have seen for a long time.
The commercials/producers know what they are doing and have reduced their selling while they prepare for the next price advance. The attitude of the speculators, on the other hand, is an ideal contrary indicator.
Overall, the current correction is not unprecedented, and time is running out before gold makes its next move to new highs.
If the past even rhymes, we should see gold advance to $2,500 to $3,000 in the next leg. It would be best to use weakness now to invest for that future rather than waiting for new highs and then joining the crowd in chasing prices higher.
If you feel fully invested in metals at this point, persevere and be patient. Seasonally, gold usually firms up in the spring and then accelerates in the summer.
The most conservative approach at this point is to invest in bullion gold. The easy way to do that is to purchase Central Gold Trust (GTU).
This is a closed-end mutual funds where actual gold is held in trust for the stockholders. It is taxed as stock rather than taxed unfavorably as are commodities and commodity ETFs.
Our downside buy price has been $65.00 for some time, and that remains unchanged. I believe that is the maximum you should pay at this time, and any accumulation under $65.00 is warranted.
Meanwhile, there doesn’t appear to be much downside risk left in gold mining shares at this point, but the waiting game could last a couple more weeks.
My favorites remain Goldcorp (GG), a buy under $50; Royal Gold (RGLD), a buy under $65; and Yamana (AUY), a buy under $15.
We believe we are going to eventually see a blow off rally in the mining shares before the gold bull is over, and it will be as insane as the dot-com bubble was in the late 1990s.
This is an ideal time to own mining shares. With the prospects of seeing gold breaking into the mid $2,000 range this year, the best is yet to come for the miners.
Learn more about this financial newsletter at Curtis Hesler's Professional Timing Service.