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Welcome to Profit Confidential • Wednesday, May 23, 2012

Precious Metals Investments: How They’re Affected by the Middle Eastern Unrest and Devastation in Japan

Thursday, March 24th, 2011
By George Leong, B.Comm. for Profit Confidential

Libya is getting bombed by American, British, and French fighter jets. The situation in Libya could spill over to other Arab countries in sympathy. Japan just suffered a horrific tsunami and related leak in one of its nuclear generation plants. The damage could impact the country’s economic renewal. Also don’t forget about the mounting debt and deficit in the United States. Where is gold in all of this? And other precious metals investments?Libya is getting bombed by American, British, and French fighter jets. The situation in Libya could spill over to other Arab countries in sympathy.

Japan just suffered a horrific tsunami and related leak in one of its nuclear generation plants. The damage could impact the country’s economic renewal.

In all of this, after declining to just north of $1,300 an ounce, gold has been rallying. It is trading at a key level of $1,430 on the chart.

Investing in gold is a safe haven play when the market risk rises.

Gold has rallied in each of the last 10 years and shows a beautiful bullish price chart. My gold advice would be to accumulate gold on weakness. The situation in Libya could worsen and there are also tensions in Iran and other Middle East countries. This means added global risk. Oil is trading at over $105.00 per barrel on the threat of more disruption in oil from Libya.

In my view, the key determinant of how gold will fare will depend on the direction of stocks along with the geopolitical tensions.

A strong and bullish stock market tends to drive some selling in gold, as capital flows into equities from gold. This could materialize, but my feeling is that gold will receive support from the global uncertainties in the Middle East and Japan, along with higher expected demand flowing out of China and India as the countries’ per-capita incomes continue to edge higher.

If the Middle East situation worsens, it would drive up oil prices, which would impact economic growth at a time when the economies continue to be at risk. I would not be surprised to see gold move towards $1,500 an ounce over the next year.

Also don’t forget about the mounting debt and deficit in the United States. The country has over $14.0 trillion in debt and is paying billions in interest daily. Many states are struggling to make ends meet and are looking at severe cuts in the state budgets.

On the chart, the Relative Strength for the April gold has strengthened, so there could be additional upside moves in the near term. There remains a bullish golden cross on the chart, with the 50-day moving average of $1,384 above the 200-day moving average of $1,321. Look for resistance at the 13-week high of $1,434.1 and $1,440. The recent move above $1,440 failed to hold.

Silver has also followed gold higher, with the May silver futures contract above $36.00 an ounce. Silver is a play on the economic recovery, as it’s found in electronics.

I also like copper as a play on the recovering global economies, especially in industrial applications and housing.

My advice to play the commodities is to buy gold stocks, silver stocks and oil stocks on weakness, especially if the situation in Libya and the Middle East worsens and Japan weakens.

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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