Stocks Will Fall and Gold Will Rise

03/31/2010 11:27 am EST


Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says the stock market is due for a correction, while gold is coming to an end of its recent weakness.

By the end of this year, I expect to see the popular averages in a steep decline.

Part of the fuel that will propel the next decline has been stored up over the last year with dollars being borrowed at excessively low interest rates and used to buy speculative paper assets. This debt-financed, risk asset investment scheme has created a wave of speculation that will usher in the next global financial crisis.

We are going to see another deleveraging phase. I expect it will begin this year, and relatively soon. Borrowed dollars are currently being thrown at the stock market to the point that both professional and public sentiment is excessively bullish. There are too many folks on the same side of the boat, and it is going to tip.

There is the possibility that gold will initially be taken down somewhat during the next deleveraging phase (like it was last time); but if this happens at all, the negative effect on gold prices will be muted and short-lived. The players saw how well gold held up in 2008 relative to every other asset class and how quickly it recovered.

Over the last year, central banks have reversed their desire to sell gold and have come back to the table as buyers. India’s 200-ton purchase from the [International Monetary Fund] is one overt example. Sub rosa, China has been in the market as they look for ways to work away from the dollar. Russia and Venezuela are adding to their gold reserves.

Of course, you have all heard about George Soros’s and John Paulson’s recent moves into gold with their hedge funds. Paulson has raised $5 billion just for gold investments. You can question where these guys have been for the last ten years, but they are not weak hands. I think they see the next global financial crisis clearly developing and are investing for it now.

I don’t think the gold correction is quite over yet, but it is running out of time. We typically see a low in March; and in this light, we need to temper our down side expectations.

If I were pressed to buy something—recognizing that I may be hampering my risk-to-reward balance—I would buy Goldcorp (NYSE: GG). I think we still have a good shot at buying it again at our downside price of $34.50. (It closed just below $37 Tuesday—Editor.)

Gold output is up at all of their producing mines, and development projects are coming on line as planned. Goldcorp should be at the core of your mining stock portfolio.

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