Gold Will Glitter for Quite a While

06/10/2010 1:00 pm EST

Focus: COMMODITIES

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says retail investors will eventually abandon stocks and embrace gold, adding a new leg to the commodities bull market.

I think the retail investor has had enough of the stock market. Investors will shift some money into bonds thinking they are safe; but once interest rates begin to rise, confidence will be shattered in the bond market as well. Mutual funds, hedge funds, and managed accounts will all see their clientele make a mass exodus. This is what bear markets are all about.

As stocks and bonds become more disappointing, investors will flock to where the money is being made. That will be commodities—gold and crude oil in particular. As the public increasingly gravitates into tangibles (as they did in the 1970s), investment demand will become just as maniacal in the commodity market as it became in the dot-com craze in the late 1990s. All shreds of reason will be left behind. The key leader in this acceleration will be from the archetypal tangible asset—gold.

Gold found our downside target zone of $1,180-$1,150 [an ounce], but just barely and only briefly. The August gold contract touched $1,168 on May 21st, but it quickly bounced back to overhead resistance at $1,225 [and went on to hit new highs above $1,250—Editor.] I am expecting another dip to the $1,168 level, and perhaps a bit lower. The correction off the May high will then be complete and the next bull leg can begin.

The US dollar will not stay strong indefinitely; like all paper currencies, it will depreciate over time. As currencies depreciate, the cost of hard assets [will increase]. Gold, of course, has always done well during both deflationary and inflationary times of crisis. Gold is proving its worth yet again.

If you would like a shot at silver with a gold play tossed in, consider Central Fund of Canada (Amex: CEF). This is a closed end fund—not an [exchange traded fund]—holding approximately 50% gold bullion and 50% silver bullion.

It is similar to Central GoldTrust (Amex: GTU) in that you are invested in physical gold and silver bullion, which is stored for the fund, and the fund is run by the same folks in Canada that manage GTU.

It is taxed as a stock, so it avoids the unfavorable tax rates levied on commodity ETFs. Buy CEF at $14 or better. (It closed under $15 Wednesday—Editor.)

Personally, I like to stick with gold. There are those who speculate that silver will rise by a greater percentage than gold, and perhaps it will. However, silver outpacing gold is not assured by any means. Speculate with a little silver, but keep your focus on gold.

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