Riding the Storm

For the benefit of my readers who have taken a position in bullion or gold stocks, and who have been riding the current market correction in gold, the following hopefully addresses some questions or concerns you may have:

Is gold still in a bull market: Yes. The charts clearly show gold’s bull market starting in 2001 and continuing to today.

Have there been other corrections in the gold bullion prices since 2001? Yes. Gold bullion prices fell 13% from February 2003 to May of that year. The price of bullion fell 12% between January of 2004 and May of 2004.

How far could gold prices fall in the current correction: If we take a straight correction of 15%, the price of gold bullion will fall to $610 U.S. per ounce. If we look at a long-term price chart of the metal, gold could fall to $550 U.S. an ounce and still be in a bull market. Because gold bullion prices rose so aggressively in the first part of 2006, this correction could be a strong one.

What’s a speculator to do? Get out of the gold market.

What’s an investor to do? Buy your favourite gold stocks every time a gold bullion correction knocks them lower. Set targets. One might be: Buy more gold stocks if bullion hits $600 U.S. per ounce. You could then set your next buys each time gold moves $25 per ounce lower.

As a refresher, why is it that gold’s rising in price again? Huge American budget deficits, huge American trade deficits, a continued weakening U.S. currency, oil producers who may soon want more than just dollars for crude, foreigners who are becoming wary of financing America’s ever increasing debt… need I add more?

Is it wise to sell my gold stocks and buy them again after the correction? No. There’s no such thing as a crystal ball in investing. If you sell your gold stocks today, and the correction in this gold bullion bull market ends tomorrow, you may never be able to buy your gold stocks at the prices you sold them at. This situation is a classic for dollar cost averaging. Picking a top or bottom in any market is virtually impossible.

Has Michael Lombardi sold any gold stocks: No. I’m just riding the storm.