…And So Is Gold

11/17/2009 11:07 am EST

Focus: COMMODITIES

Eric Roseman

Editor, The Commodity Trend Alert

Eric Roseman, editor of Commodity Trend Alert, expects a sharp correction soon in gold, but then he thinks it will continue its rise in what he calls a secular bull market.

The United States is where Great Britain was at the end of World War II—financially exhausted, overextended globally, and losing its economic influence. This credit crisis marked the “beginning of the end” of American financial hegemony.  

China, India, and other emerging markets now have the big money. They’re creditor nations, while the United States is the largest debtor nation. They’re increasingly calling the punches and I think it’s vital that we follow the money train as it pertains to gold.

[Recently], the International Monetary Fund (IMF), which acts a conduit for US and Western economic influence, sold gold to India’s central bank in a predetermined sale worth $6.7 billion—the biggest central bank purchase of gold bullion in 30 years.

That news, I believe, triggered the latest round of buying as gold prices crossed $1,100 an ounce. This is big news. The Western central banks and the IMF sell gold bullion the emerging market central banks are accumulating to supplement their dollar-based reserves. Can you blame them?

China is fenced in—along with India, Russia, and Brazil (the BRICs)—because of her massive $2.1-trillion reserves, [much of which is] denominated in American currency. They’re not stupid. They’re quietly selling dollars to boost their gold reserves while other Western banks sell their gold to raise hard cash amid a credit collapse.

Only the US and Germany have not unloaded their gold this decade, while most Western central banks have been net sellers, including gold-producing nations like Canada and Australia. As a gold bug, this is exactly the type of situation we want: The big boys in the emerging markets are accumulating gold, and supplies are tighter than ever as production declines.

But gold and silver are overbought and will eventually post another correction in a series of corrections like we’ve seen since 2002. Every bull market endures corrections. But in a bull market, you buy the corrections. And that’s exactly what we’ve done over the last seven years.

Still, after another big burst of gains, I’ve placed the gold stocks on Hold. This means a correction is imminent, and I do not want you to add to your holdings at these levels.

Effectively immediately, continue to hold gold, silver, and your gold/silver mining stocks. Wait for a correction before resuming fresh purchases. We remain “maximum bullish,” but believe a violent, short-term correction lies ahead—probably in conjunction with a decline in other risky assets like stocks.

We might not even see a correction, however unlikely, because this market might get away and rally even harder. But pigs get slaughtered and we’re not greedy. A correction is coming, and I see no reason to sell or reduce our stakes in anything gold or silver-related because a decline won’t last very long. This is a powerful, secular bull market.

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