Investing in Gold: Why it’s Still One
of Your Top Options in Risky Times
Thursday, June 23rd, 2011
By George Leong, B.Comm. for Profit Confidential
Greece needs more money to pay for its previous loan. Ireland is in financial chaos. Portugal and neighbor Spain are not on stable grounds and could need help. And then there are Italy and Belgium. The European Union is in trouble. Germany and France are helping to pay for the misfortunes in these other countries. Europe is facing significant growth and debt issues.
Then you have the rising inflation in China, where interest rates are edging higher. In China, inflation surged to 5.5% in May, the highest level in about three years. The Chinese central bank has increased the bank reserve ratios in an effort to stall lending. I also expect another interest rate increase to come, the fifth since October 2010. Slowing in China will have an impact on economic growth and other global economies that deal with China, including Europe, India, and the U.S.
Domestically, you have a national debt of over $14.0 trillion and a trillion-dollar deficit. There is an effort to lift the debt ceiling in order to spend more. But many states are struggling to make ends meet and are looking at severe cuts in their state budgets.
Given all of this risk, you should be investing in gold.
Gold is considered a safe-haven play versus that of silver. Investing in gold is a prudent move when the overall market risk rises, like what we are currently witnessing.
On the demand side, China is a significant buyer of gold. This is expected to continue, as the country hoards physical gold in its reserves. India is also a major buyer.
Gold is a limited resource that needs to be found and mined. There is a certain amount of global reserves in the ground, but, after that, there needs to be more exploration.
Gold has rallied in each of the last 10 years and shows a beautiful bullish price chart. My gold advice would be to accumulate gold on weakness.
On the chart, the August Gold traded at a record high of $1,577.70 on May 2. The current chart looks bullish on above-average Relative Strength. There is a “golden cross” on the chart, with the 50-day moving average (MA) of $1,517 well above the 200-day MA of $1,411.70.
Some pundits have suggested a $2,000 target on gold over the next few years. I even saw a staggering $5,000 price target on gold. Now, the latter may be the extreme, but I feel that gold prices will continue to edge higher, especially if Europe falters.
In the current climate, gold is the best bet, while silver continues to be a trading commodity.
Buy a mixture of exploration-stage gold players and small to large producers. Under this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers.
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Tags: chinese economy, Chinese economy Analysis, european union, gold advice, gold prices, Greece, inflation in China, investing in gold, national debt
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
