For the courtesy of my readers who invested in gold bullion or gold shares, today I want to offer my thoughts on the current correction in the gold market.
I’ve written before that I welcome the correction in gold prices for several reasons. Corrections in any bull market are healthy in reducing speculation. Secondly, it’s simply unhealthy for any investment to go up in a straight line–that doesn’t give a chance for investors to enter or exist. Finally, by their nature, bull and bear markets have long secular up or down trends with corrections along the way.
Look at these interesting facts:
— Gold bullion prices have risen from about $250 U.S. an ounce in the spring of 2001 to about $670 today. That’s a gain of 168% or about 28% per year over the past five years. Few investments have matched this return in recent years.
— Since September 2005, gold bullion prices have jumped 49%.
The questions I hear most these days: Michael, how far will the correction in the gold market go and when would be the best time to jump in? The exact answers I don’t have. But I can offer you this:
It’s always the right time to get into an investment when it is experiencing a correction within the confines of a bull market. If you buy some quality gold stocks today, some next month, and some the following… concentrating your purchases into six groups over six months… you’re slowly dollar cost averaging into the gold bull market.
I don’t advocate in and out trading of gold stocks because I see them more as a long term play against the devaluation of the U.S. dollar and as a hedge against the massive U.S. debt that’s accumulated. Could gold go down to $500? Yes, I believe it could. If we take the half way point between the price of gold when this bull market started in 2001 and its recent high of about $700 U.S. per ounce, we come out with $475 an ounce. Hence, if gold fell to about $500, it would technically still be in a bull market. If gold doesn’t move that low in this correction, this bull market in gold is much stronger than we presently understand.