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With what is happening with the price of gold these
past few days it is imperative to take a look at the long and short of it all
(the trends, that is). In doing so it shows that we are still very much in a
long-term bull market but in a short-term (yes, short-term) bear market.
Let's take a look at some charts that clearly outline where we are at and
where we could well be going.
Physical Gold
As can be seen in the graph below the 70s
experienced 2 major bull markets and an 18 month bear market in between while
continuing to trend upwards.
Right now, I believe we’re at a period not
unlike early 1975. Then, as it is now, the uptrend is still intact. True,
gold has dropped below the 28 week (200 day) simple moving average but is
still above the 65 week moving average as can be seen in the weekly graph for
gold as of December 14th, 2011:
 
A look at the chart below of the daily close of the
price of gold over the past 3 months clearly shows that an excellent way to
trade gold is to buy and sell on the basis of the 20 day Exponential Moving
Average. EMA is a moving average that gives greater weight to more recent
data (in this case the past 20 days) in an attempt to reduce the lag of (or
"smooth") the moving average.
Gold Miner Stocks
No discussion about gold would be complete without
taking a look at the performance of the HUI index which consists primarily of
large and mid-cap gold producers. As the graph shows below it is struggling
terribly underperforming equities in general and gold by a wide margin. Be
that as it may, most analysts believe it is just a matter of time (Goldrunner writes inGoldrunner: Gold,
Silver and HUI Index to Bounce Back to Major Highs by May 2012
that the HUI could almost double
in the next few months - see here for his rationale) before the precious metals
mining (and royalty streamers) sector closes the gap as a result of much
healthier bottom lines.
Gold Miner Warrants
If you agree that the gold and silver mining sector
has nowhere to go but up in the next few months serious consideration should
be given to investing in the long-term warrants that are offered by a few of
the constituents of the HUI. Warrants generally enable an investor to take a
similar position in a company for approximately 60% less dollars deployed and
realize gains often double that of the associated stock. No warrant ETFs
exist but a look at my proprietary Gold and Silver Warrants Index entitled Gold and
Silver Warrants: An Insider’s Insights (see here)
will provide you with major insights into this extremely small and unknown
investment option.
Conclusion
When I look at the charts above it is obvious that
gold has just undergone a pre-Christmas sale of epic proportions which I
think is probably the last opportunity to get in before it continues in trend
upwards. The financial crisis in Europe has chased people out of gold and
equities hitting gold stocks with a double whammy making for an ideal entry
point at this time. The long-term gold and silver warrants have been hit hard
making them the buy of the decade.
The above being said, who knows what nasty surprises
the powers-to-be might throw our way in the months to come in 2012 but
whatever they might be gold and silver, in all its investment forms, should
do very well long-term, thank you very much.
Lorimer Wilson (follow
via FACEBOOK
and/or TWITTER ) is
editor of www.munKNEE.com (Your Key to Making
Money!) and www.FinancialArticleSummariesToday.com (A
site for sore eyes and inquisitive minds) and publisher of a daily FREE Financial Intelligence Report which
can be subscribed to here.
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