That Gold Chart’s No Fluke

By Thursday, September 15, 2011

The precious yellow metal continues to hold up well on the price chart, as traders shift capital from the higher-risk equities to the safe-haven sanctuary of gold. The precious yellow metal continues to hold up well on the price chart, as traders shift capital from the higher-risk equities to the safe-haven sanctuary of gold.

In this country, there are crippling debt levels and deficits. Some cities across the nation are shutting down to save money. The once-powerful U.S. economic engine continues to show cracks and is stalling at this most critical time for the country.

Over in Europe, we have the PIGS (Portugal, Ireland, Greece, and Spain) sucking money from the European Union and International Monetary Fund and taking away from any focus on growth. Greece is trying to avoid a debt default. The focus on the debt crisis of the PIGS is taking away from any attempt to jumpstart the eurozone. Moody’s downgraded two French banks. Remember; Moody’s along with the other major rating agencies was partly responsible for the U.S. credit collapse after questionable rating practices that downplayed the credit problems. I continue to be quite cautious towards the situation in Europe.

We are also seeing some economic fragility in the BRICS countries (Brazil, Russia, India, China, and South Africa). Brazil, India, and China are seeing some stalling in their economies and stock markets.

Gold has edged higher in each of the past 10 years.

Buying has been driven by a combination of speculative trading in physical gold and gold exchange-traded funds (ETFs), and buying as a safe-haven investment.

Lombardi Financial initially turned bullish in 2002-2003 and has remained so ever since. Although at times the bullion has had a rough ride, metal prices have turned around significantly after first breaking above $400.00. We believe the spot price of gold will take a run at $2,000 by 2012 should the global economies and risk continue.

For starters, world governments have committed trillions of dollars to various bailout packages. Those bailouts will have also left a debt trail of gigantic proportions.

The Federal Reserve has pumped hundreds of millions of dollars into the U.S. financial sector in an effort to create liquidity, encourage lending, and entice consumers to start spending again. Of course, after two rounds of quantitative easing, part three is now needed.

The simple truth is that gold is a trustworthy and realistic investment instrument that should be in every investor’s portfolio. Gold’s traditional role as a safe haven has made it the underdog in the world markets. It is an investment that people turn to only when stock or bond markets aren’t performing well, or when monetary policies are running amok. Yet there is a sense that gold may be increasingly seen as a credible and realistic investment vehicle and not just as a safe-haven instrument for parking capital.

In the current climate, gold represents the best bet, while silver continues to be a trading commodity based on the economic recovery and demand for electronics and industrial applications.

My advice to you is to buy a mixture of exploration-stage gold miners along with small to large gold producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers. Buy gold stocks and silver stocks on weakness. SPDR Gold Trust ETF (GLD) is worth a look.

About the Author, Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »