While the Fed struck a dovish tone at its last meeting, market participants may be overly dovish, wh...
What $1,000 Gold Is Telling Us
09/23/2009 1:00 pm EST
Curtis Hesler, editor of Professional Timing Service, says gold at $1,000 an ounce points to a sea change in the investment world, and he recommends a junior miner to play it.
I believe $1,000 gold is warning us that there is a new change in global philosophy towards a focus on the “real money” aspects of gold. In an ever more risk-adverse and uncertain global economy, wealth is beginning to seek quality and safety.
Gold at the $1,000 level is telling us that, indeed, 24 months from now, the value of the US dollar will be lower in relation to other currencies, but remember, all currencies are fiat now. Everyone—including Europeans, Russians, Asians—wants to find an alternative to their local currency.
Nevertheless, as the dollar falls, the price of commodities will rise in dollar terms. This is inflation, pure and simple. As energy prices rise, the prices of goods and services will also rise since they are all dependent on energy in some fashion—or profit margins will disappear and the economy will contract. We will suffer both deflation and inflation into the next decade.
Gold at $1,000 is telling us that the next leg of the commodity bull that started in 1999 is about to heat up. It is telling us that the next leg of the bear market in stocks is about to get underway as well.
So, what should you do with $1,000 gold? Should you buy gold now? Yes and no. I agree that for the long term, gold is a store of wealth, but it’s not necessarily the best place for one’s investment dollars at all times. Although gold is superb as an investment vehicle right now, there are times when gold is not the best investment. Gold investors did not do well during the 1980-1999 period.
Near term, this assault on $1,000 may set off buy stops and produce a rush, but be careful. Stiff overhead resistance is still at $1,000. If we see a convincing breakthrough once the shorts are flushed, prices will fall back briefly to the breakout level or a bit lower.
I still do not see gold as a buying opportunity here. I have often said that if you were to pay too much for something, gold would be my choice, but my approach has always been to buy during weakness. Wait for it and it will come.
Take a look at Eldorado Gold (NYSE: EGO). The shares look very good, especially on a comparative strength/weakness basis. I am not going to advise you to buy strength; but at some point—and I think soon—we will see a correction in the market. The chances are good that it will bring out the profit-takers in the metals as well. There is nothing lost in putting in an open buy order at $9.00 on this gem and seeing what comes of it. (It closed below $12 Tuesday as gold traded at $1,014 an ounce.)
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