Thursday, September 10, 2009

Go-Go-Go-Go-Go-Go GOLD!!

The world is going wild as gold continues to grind higher, and many believe this is just the beginning of a strong bull market. Gold has constantly been in the news and rightfully so. The Chinese have for a very long time expressed concern about the dollar as the world’s reserve currency, and now the United Nations has joined the parade. It has been acknowledged that the Chinese are even looking to invest in gold on dips to diversify their reserves. The developed world has started to fiscally destruct and the aftermath of the implosion of the western banking system is still being felt. Gold has so many benefits that make it appealing during these uncertain times. It offers protection from risk aversion and currency devaluation, defense against inflation and monetary experiments.

With this backdrop, over the last week gold has broken out to the bullish side of a technical trading pattern called a pennant (indicated by the white lines in the chart below). This suggests good things to come for the precious metal as the technicians are looking for a $60 gain on that breakout. Additionally, the widespread media coverage could lure investors to the metal and give another boost. But the bulls have to contend with a strong ceiling as gold is failing to hold $1000 per ounce for the second time this year (the horizontal red line). This seems to be an important psychological barrier to overcome so it will be interesting to see if the buyers or sellers win this short term battle.

While interesting, the short term move has little impact on our long term strategy. We feel confident in our decision to maintain a 5% hedge in gold. Longer-term, global fundamentals remain uncertain and gold provides security for many possible outcomes. After all, gold is gold.