Why We Are Gold Bulls

Gold has edged higher in each of the past nine years and it looks like we will soon see a decade-long bull market for the precious metal.

We here at Lombardi Financial turned bullish in 2002-2003, and have remained so ever since. Although at times the bullion has had a rough ride, metal prices have turned around significantly and we believe the spot price of gold can easily creep up to $1,500 in the near term. Some pundits are even suggesting a $2,000 longer-term target for gold based on rising demand out of China and India.

There are plenty of gold bears out there who beg to differ, because the Great Recession, Part II, is threatening to cripple the demand for gold jewelry. And they would be correct, but only about jewelry.

But there are plenty of other reasons why we are gold bulls.

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. In the U.S. only, about $2.0 trillion of the bailout money has been procured through auctioning government debt instruments. In turn, the budget deficit is going to be enormous and, as a result, the U.S. dollar is continuing to be weak in 2010 and this could continue into 2011, as the government’s financial situation moves deeper into the red. Note that the lower the dollar goes, the better it is for gold prices.

In addition, 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. It sure is taking time, but all this money is bound to reverse the effects of deflation and result in inflation, which has always been the best thing there is for gold prices.

The October Gold on the COMEX is holding above $1,270 and above its 50-day moving average (MA) of $1,220 and 200-day MA of $1,171. The near-term technical view is bullish on above-average Relative Strength, so there could be additional upside moves. Watch for a break at $1,280. A positive is that the 50-day MA is above the 200-day MA. We see strict resistance at around $1,300. Watch, as gold is overbought.

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 where you can park capital.