Greg's Note: Ed Bugos, fresh from the Agora Financial Investment Symposium in his hometown of Vancouver, has some insights on the current state of the gold market. Ed tells us that we are still in the midst of the market correction that began in March. The fundamentals for gold are still as bullish as ever, so why are we still waiting for the correction period to end? There are several factors that effect the price of gold, and many of them are currently weighing the price down. But don't be fooled, the correction period should be over soon, and gold will be right back up. Do you believe that the gold market is still a bull one, or will this correction last longer? Let us know at greg@whiskeyandgunpowder.com Whiskey and Gunpowder Waiting for Gold's Next Rally Last week we saw a bounce in the stock market that threatened to send the price of gold down to the $920 mark. After a lightening advance celebrating the approval of the quasi-nationalization of America's too-big-to-fail mortgage providers, the market caved on reports of continued stress in the homebuilders. The Dow gave back almost five days' worth of gains in one fell swoop. So should we not have seen a better bounce in gold? Maybe it's too early to call the Dow. Further weighing on gold prices were a lifeless bounce in oil and the market's shift in focus to signs that gas demand is ebbing. Sometimes, however, there is a delayed reaction in gold, which happens more often than efficient market theorists would like to admit. Gold's fundamentals are still bullish. Mining costs continue to increase, which pushes up the floor on gold prices. ~~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Turn $1,000 into $4,099,000 This kind of profit can be made in just six months by only playing bulletin board stocks. This is one of the most profitable investments you can make. And now it's your turn to make profits like this. But you'd better hurry, this opportunity ends Thursday at midnight. Click here for more… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Several months ago, I calculated that production costs had more than doubled for the gold mining industry since gold traded at under $300 per ounce some eight years ago, and, consequently, that the decision to shut down mines would today occur at $600-700, rather than $300. The supply situation is already tight. It is getting increasingly difficult to replace gold reserves. And of course, there is no end in sight to the readiness of central bankers to inflate, guaranteeing a strong flow of gold demand. As for the prognosis, I see two possible scenarios for which there is some technical precedent. Technically, the market is trendless. Neither bulls nor bears have gained much traction since the correction began in March. The seasonal low could be in, but it remains unconfirmed by a higher high. A casual glance at the chart would tell you nothing except that the market could fall to $750 as easily as it could rally to $1,200. Technicians would call it a neutral pattern, though some may read bullish or bearish biases into how it is developing. I won't get into that. But one does not have to be a technical analyst in order to grasp some useful truths from the chart. It is true that history never exactly repeats itself. But there are similarities, or regularity in the behavior of prices, that can help with our outlook. For example, if you look at the corrections since 2001 in the chart below, you'll notice that rarely have they lasted much more than a couple of quarters before the bulls took charge again. You might also notice that the first leg in each correction has been followed by a second one that usually fails to make a lower low -- 2004 being the exception. The market also likes to brush up against its 50-week moving average before completing the correction. ~~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Gold Crushes the Falling Dollar With the dollar continuing its precipitous fall, gold may be the only safe haven for wealth we have left. And as the rest of the world begins to realize this, the great gold boom will continue and thrive. That's why you've got to get into the gold market immediately. $150 oil is right around the corner, and $2,000 gold is next… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Moreover, we can even infer a loose relation between the extent of a rally and the depth and duration of the ensuing correction. These things are called "technical" mainly because they have nothing to do with the fundamentals. And let me tell you, it is dangerous to put too much weight on past performance and behaviors when we're talking about investors and the market.
Notwithstanding, if this were just a typical correction, we could expect to see a second "attempt" by the bears to make a lower low over the next month or two before the bulls break out, sometime in the fall. But the exception is worth considering, too. Give The Gold Rally Some Elbowroom! The market is at an important number and inflection point, which threatens to complicate the situation central bankers face today -- their control of interest rates, to be precise. Naturally, the "powers" will do everything they can to resist this change. Similar conditions prevailed back in 2004, when gold was trying to break past its old 1996 high, about $425ish, which would reverse the downtrend in the longer-term charts and signal a new bull market -- note in the chart below how the moves became more violent once gold broke past this level. As it is now, the Fed was then about to embark on its tightening campaign, after having talked about it for almost a year… making gold bulls nervous about the impact of higher rates. Of course, the Fed's job was a tad easier then. There was no series of financial crises to contend with. The stock market hiccupped, but the economy was producing jobs, and nobody much minded the Fed gradually ratcheting up interest rates. As it turned out, however, it was just enough to keep bondholders happy, but not enough to rein in the effects of the Fed's previous inflation policy. The bears pushed down on gold prices, but did not realize just how tight the springs were and got caught in a lower chart low before gold whipsawed higher. The market hasn't looked back since.
So it is possible that the market could make a lower low, if only to make more elbowroom in the chart for the breakout… sort of like pulling a slingshot back further to get a little more energy out of it. On the other hand, the Fed's hand is weaker than it was in 2004-05. Because of this, I have to favor the former scenario, in which the correction low in gold is already in. Regards, P.S. While we wait for the gold correction phase to end, and the next phase of the gold rally to begin, investors are facing a great opportunity for investment. As you just read, the technical and fundamentals point to the price of gold going up once again. This is the price dip you've been waiting for, and now you can really begin making some money in the coming blowoff phase. Click here for more… |
Whiskey & Gunpowder Special Reports New "Backlash" Set to Rocket Oil Past $150...and Send Gas Soaring to Over $6 per Gallon The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to lemmetry@gmail.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
