10-year Strategy of Buying Gold Stocks When Gold Bullion Moves Lower in Price Still Working

There is one strategy investors have (or at least this investor has) been following for 10 years to make money in this treacherous market.

The strategy is quite elementary. Every time the price of gold bullion moves down three percent, I like to go in and buy more gold-related investments. This strategy has worked for 10 years and I still see the opportunity continuing in buying gold stocks when the yellow metal has sharp, one-day corrections.

I need to tell you, dear reader, I laugh when I read reports try to explain why the price of gold bullion is falling or rising. Yesterday, a well-known financial site said that gold bullion was down sharply, because rating agency Fitch said that big U.S. banks could see their credit ratings downgraded because of their exposure to the eurozone’s debt crisis. How ridiculous.

It doesn’t matter to me why gold bullion prices are rising or falling on a daily basis. What matters to me is the long-term direction of the financial markets. We know that the Federal Reserve initiated an unprecedented expansion of the money supply in the U.S. over the past three years. We also know that many eurozone members need a big bailout from the European Central Bank. The numbers I have read say that the financially challenged eurozone countries need a $2.0-trillion bailout.

The bottom line: the more fiat money created in America or Europe, the less the value of money, the greater the risk of inflation, and the higher the price of gold bullion goes. (See Top Five Reasons Why Gold Bullion Prices Will Move Even Higher.)

The real reason gold bullion goes up or down daily? I believe investors and traders are simply taking the opportunity to take some profits off the table. As gold bullion prices decline, gold bugs move in and buy more, pushing the prices of gold stocks up.

Yesterday, the December gold futures contract fell $54.40 to $1,719.90 an ounce…what an opportunity for investors to jump in and buy more momentarily depressed gold stocks! And talking about gold stocks, I was very impressed Thursday that, in spite of gold bullion being down three percent for the day, gold stocks did not collapse as they normally would on a day where gold bullion is down over $50.00 an ounce.

While I’ll talk more about this next week, world central banks bought more gold bullion in the third quarter ended September 30, 2011 than in any other quarter in the past 10 years! I wonder why central banks are suddenly running out and buying gold? Must be all those issues of PROFIT CONFIDENTIAL (10 years of them) where I’ve been pushing gold-related investments.

Next week, I will be writing more about the recent actions of world central banks rushing out to buy gold.