A Financial Miracle or Just an Old-Fashioned Price Correction?
Monday, March 24th, 2008
By Michael Lombardi, MBA for Profit Confidential
With gold bullion down more than $100.00 from its record high of $1,033 an ounce… with oil falling $10.00 after reaching $111.00 a barrel… rumor on the street has it that Fed Chairman Bernanke has been able to steer the U.S. away from a severe recession and relieve the panic building in the banking system.
Yes, Bernanke has taken some of the most aggressive financial steps since the Great Depression to calm the storm. The Fed took the unusual step of swapping U.S. Treasuries for banks’ non-liquid mortgage-back securities. It has reduced interest rates quickly. The Fed even lent money to securities firms and bailed out Bear Stearns. (If you’ve heard the rumors that Merrill Lynch is at risk, no fear; Bernanke can bail out them, too!)
The Federal Reserve, in taking all these unusual and aggressive steps, is trying to change the course of financial history and give us a financial miracle. I do believe that it is doing a great job to alleviate the concerns about the stock market and the economy. But just because commodities prices finally got “whacked” last week doesn’t mean that we are out of the woods. The fact is that we are already in a recession.
Traders and market commentators have very short-term memories. Yes, gold is down 10%, but it is still up 240% from the start of its bull market. As for oil, it is down 10%, too. But if we take $15.00 a barrel as the starting price of oil’s bull market, oil is still up 567%!
As I wrote late last week, gold bullion has risen so much so quickly that it could fall to $800.00 an ounce and still not break any major support lines. If we use the 50% retracement rule, gold would have to fall $650.00 an ounce for the bull market in bullion to be over.
Yes, Bernanke is doing a great job. As a market watcher, he has been quicker to react than his predecessor was. And for the good of all of us, I hope the worse is behind us for the banking crisis.
But I believe that the bull markets in the commodities markets, especially gold, silver and platinum, are far from over. I believe that those commodities have a lot more to do with the U.S. dollar than with the economy. And as long as the Fed keeps bailing everyone out, more U.S. dollars will be needed to be created. This will result in greater demand for the hard money assets. The bottom line: I believe that we are simply witnessing a long overdue correction in the commodities markets where prices have gotten too far ahead of themselves. In a glass half full, half empty scenario, I see opportunity for investors in quality precious metals stocks.
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Tags: bull market, gold, gold bullion, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
