The Long Awaited Correction
Wednesday, February 8th, 2006
By Michael Lombardi, MBA for Profit Confidential
Veteran readers of this column are well aware of my core investing belief that no investment goes straight up or down. In all bull and bear markets there are corrections which occur. And, while many investors look at these corrections as nerve-racking, forcing many to second-guess their choices, I look at corrections as a second chance for investors.
In bull markets, corrections happen to scare the late comers out. In bear markets, corrections, on the upside, happen to give investors a false sense of security-that the bear market might be over.
Personally, I’ve been waiting for a price correction in the gold bullion market to happen for months. It’s my belief that correction started yesterday when gold was down almost US$20 an ounce on the day, or just over 3 percent. Many gold stocks were down about 6 percent– an indication gold investors got spooked and started heading for the hills.
We need to put the strength of the current bull market in gold bullion in perspective:
— Gold is up over 100% since late 2001. That’s a gain of about 25% a year.
— In the last three months, gold bullion prices have risen by about 25%. That’s more than the metal has risen in price in the preceding twelve months.
Activity in the gold market was getting hot and heavy. The popular media was starting to pick up on the gold bullion rally, gold conferences were starting to sell out, banks and brokerage houses were starting to come out with very bullish gold bullion predictions. And that’s when corrections happen.
But, despite the price correction in gold yesterday, I believe very few investors have taken a gold position in their portfolios. I’m looking at yesterday’s gold price retreat as an opportunity.
Technically, I see minor price support for gold bullion at US$545 an ounce and major price support at US$490 per ounce. I’d be a light buyer of gold stocks if bullion prices reach the minor resistance and a strong buyer if gold gets below the US$500 an ounce level.
NEWSFLASH-President Bush has sent Congress a $2.77 trillion spending plan. Deficit for this year was estimated by the Bush Administration to be a record $423 billion.
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Tags: bull market, gold, gold bull market, gold stocks
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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
