Thursday, September 11, 2008

Gold: 'Money and Markets'

Source: Money and Markets

Larry Edelson

With events changing daily ... with the government takeover of Fannie and Freddie ... with important news coming out almost hourly — I'm sure you're often wondering: "What does Larry think here? How do I make money in these crazy markets and economic environment?"

Indeed, I'm receiving more questions about the markets ... more doubts about the commodities bull market ... more inquiries about inflation versus deflation, than I have in years.

That's not surprising, considering the extreme, wild swings in the markets. Emotions are running deep. Confusion is everywhere. Even the most experienced investors and traders are having quite a spell with the current economic and market environment.

So I'm going to convey as many of my views as possible in this report ... and the reasons behind them. That way you'll know exactly what I'm thinking ... why ... and how to both protect your money and reap gobs of profits to boot.

I'll do it via questions and answers. So let's get started ...

Q: Larry, is the bull market in gold over?

A: No way, no how. What we've seen is merely a major pullback in gold, a healthy pullback that will renew the bull market and lead to much higher gold prices down the road.

My basis for that view ...

First, the charts and technical analysis. As you can see from this long-term chart on gold, the recent pullback has retraced less than one-third of gold's bull market gains since the low of $256 in February 2001.

Gold's bull market intact.

Does it look to you like gold is in a bear market? Heck no!

Even if gold were to break the first uptrend line on that chart, it has major system support (not shown) between $735 and $763.

While it's true that gold has fallen a bit further and faster than I expected, that does not change the fact that the pullback is merely a retracement on the charts.

What to do about your gold investments?

For your core gold holdings, remember you are investing in gold for the long-term. And I believe gold is headed much higher. So it does not pay to try and side-step the correction. By trying to do so, you risk getting whipsawed by the market, and almost always end up paying more to get back in.

I recommend holding on to your core positions. And if gold declines any further, look to add to those positions.

For short-term trading, it's a different story. Make use of the stops I give you if you're following myReal Wealth Report. And if you are a subscriber to my trading services, don't be afraid to take my put option or inverse ETF recommendations to profit from short-term declines...


... Second, gold's inflation-adjusted price — $2,270 — has not yet been reached, indicating the price of gold can nearly TRIPLE from current levels.

If history is any guide, and I believe it is, then I hold that there is nearly a 100% certainty that gold will reach $2,270 before gold's bull market is over. And quite possibly, even higher!

Keep in mind that throughout history, asset classes always reach their inflation-adjusted price. They wax and wane, falling behind the inflation curve at times, and at other times, catching up and exceeding their inflation-adjusted prices.

That's true of all asset classes, be they bonds, stocks, commodities.

This is especially true in the post-1971 period when paper money's relationship with real money has been severed via the elimination of the gold standard.

Third, the bear market in the dollar, one of the principal forces behind gold's bull market, is not over. I'd like to believe that it is, but it's not — the dollar has much more to go on the downside.

You can see it in this long-term chart of the dollar index.

Dollar clearly remains in a LT Bear Market

Notice how the index is merely bouncing back a tad. Yet it remains deeply embedded in a bear market and way below levels seen just last year.

In other words, the dollar's recent rally is nothing more than a bear market bounce.

Fundamentally, I believe the U.S. economy is much weaker than Europe's. While the euro zone is certainly having its problems, Europe is NOT the epicenter of the current crisis. The U.S. is.

Moreover, I have absolutely no doubts whatsoever that our Federal Reserve, led by Chairman Ben Bernanke, will do everything in its power to "inflate away" the debt and credit problems in the U.S. — by continuing to sacrifice the value of the dollar...

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