Gold Is Reaching the Tipping Point

10/04/2012 11:52 am EST

Focus: COMMODITIES

Curtis Hesler

Editor, Professional Timing Service

With all the cheap money flying around the world, it's just a matter of time before some economy gets some traction and inflation takes off, so gold is in rally mode as an investment and a hedge, writes Curtis Hesler of Professional Timing Service.

The gold miners are beginning to merge and shuffle their assets—another sign that the bull market is in good shape. It is still easier and cheaper to buy mining companies and their properties than find and develop new gold reserves.

There will come a time of peak gold. Perhaps we are already there. Nevertheless, as the West’s fiscal accounts deteriorate, gold will become a universal “go to” investment.

The big kids are already investing, but institutional investment accounts are woefully underinvested in hard assets—in particular gold. That will change, and the influx of sudden interest will swamp the metals markets, which are by all standards small and thin.

Something will trip the stampede. It will be one of those fingers of instability talked about in Ubiquity. Which grain of sand will collapse the sand pile? You really can’t tell. You do know when the sand pile is unstable, however, where any extra grain of sand can set off a cascade. The avalanche will come before the commodity bull and the stock market bear are over.

Prices will diverge dramatically, with commodities racing into the stratosphere and stocks diving yet again. You have to be invested first, or you will be with the crowd chasing prices to the ultimate top.

We have accumulated some very nice positions in the metals, especially over the last year. It is time to hang on tight.

I am impressed with Royal Gold (RGLD) and its performance over the last two months. The long–term chart is most revealing. This is a case that illustrates the principle I was talking about concerning the Nasdaq and its inability to match the performance in the other popular averages. Lagging behind is a big negative. However, when a stock or average is able to outperform its sector—or brethren in the case of averages—it is a very bullish indication.

The trick is where to buy or add to current positions. RGLD has good support at $80, and for the time being, that is where you should leave your buy orders. There is also some minor support at $85 on the daily chart...but due to the extreme overbought numbers also accompanying the daily chart, I would keep my sights set on $80.

If RGLD comes back to $85 along with an adjustment in RSI and MACD toward more modest readings closer to the oversold camp, I will update you as to raising the buy price. For now, keep an eye on this one and pick up some at $80 or better if given the chance.

Subscribe to Professional Timing Service here...

Related Reading:

Why Gold and Platinum Are Buys

Say Goodbye to $1,700 Gold

Checking In on the Juniors

Related Articles on COMMODITIES