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Gold Just Look At The Fundamentals

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The stock market was again under pressure today, as the correction continues. But almost every piece of economic news that is released lately has been positive. The economy is starting to grow again and I expect companies will surprise to the upside when it comes to revenue and earnings. If they don't then who cares, the Fed will just pump more money into the system until things turn. In other words if you are bearish right now on stocks you are going to be missing the run higher.

Gold was hit pretty hard today, it was down $23 to $1,346. It tried to comeback late in the afternoon but then another wave of selling occurred which caused the precious metal to close near the lows for the day.

The ^HUI managed to rebound as the day went along, but still was lower by 8 points to 510. I would liked to have seen the index hit the 200 day and then close positive, but it didn't do that. So this leaves the door open for a retest of that level tomorrow, should gold sell-off even more.

The bull market in gold is far from over. I don't know if this is the bottom for gold or not, but it doesn't really matter. In 2008, gold and gold stocks were being sold off, but everything bounced back. The reason it did then is the same reason it will do the same this time. The debt and deficit in the US and other nations are out of control. Can gold go back down to $1,000? Sure, it could go back down to $500. The sheep can sell it down to whatever price they want to. It's irrelevant though because the price just can't stay at those levels. The days of $500 gold are long gone. The only way they could return is if the money supply started decreasing, which hasn't happened since the Great Depression.

The more gold goes down, the more gold mines that will close. The sector is only finally starting to recover after a 30 year bear market in the mining industry. But it needed $1,400 gold to do that. If gold drops substantially, then the industry goes back into the dark days again and mines shut down, which lowers world-wide gold production. Gold companies have to make profits to survive. Gold at $750 doesn't generate much profit for the industry. Gold at $1,000 is better, but it's not high five moments. The industry needs gold at these levels to keep the recovery on track. If they don't get it then things will just return to where they were. So gold already has a minimum that it can trade at to keep the industry healthy. When you factor in the substantial increase in the money supply, you can see why I say it doesn't matter how far down gold goes, because it won't be able to stay at those levels. In other words a sell-off in gold wouldn't be for fundamental reasons, it would be because the sheep panic. You don't want to be out of something if the fundamental reasons for owning it are still intact.

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