By James M. Carrillo
June 29, 2012
The Gold bull market has been sleeping for ten months now. It was in ridiculously overbought territory when it hit $1,900.00 an ounce, nearly every media outlet was saying it will break $2,000.00, even the long term gold bears were convinced. Markets however, do need a breather to digest such large gains, and here we are! What now?! Ten short months and nearly every gold bull and every media outlet has now either either given up it or is now saying it will drop significantly to extremes in some cases, "Is Gold on the Edge of a Violent Downturn?" -CNBC.
The key to the future of Gold is in the fundamentals of rapidly expanding money creation (as can be seen on the graph below) by the Federal Reserve. It fully supports gold moving much, much higher, as does the zero Interest rate policy they have put in place until at least the end of 2014. There is NO yield to be had folks, our cost of living is sure to rise because they are trying to inflate their way out. But when is the best time to buy? It is never wise to buy or wait until the market is screaming upwards and the news media is all aboard. It is time when the fundamentals are intact and the media begins to jump on the negativity bandwagon.
The insanity above should absolutely scare you to death! This is our countries Monetary base! It is very clear that we are attempting to print our way out of debt? This is being done by adding massive amounts of money backed by nothing but the full faith and credit of a bankrupt government, to the system. Never before in the history of our country, or in the history of the Federal Reserve have we done anything like this as can clearly be seen.
Re-iterating a phrase I used in an article written in 2008 warning of a stock collapse in January 2008, there is a "Lag Between Cause and Effect". The effect of what we have done here will be staggering to the buying power of our currency over the coming years and of course your cost of living. Gold has historically moved inversely, so saving in gold makes far more sense today than saving in bonds, cds, savings or dollars.
Below is a graph of gold prices, as mentioned above you can clearly see that gold was massively overbought when it surged to $1,900.00, it literally went from $1,000.00 an ounce to $1,900.00 in almost a straight shot. This type of gain has actually been the norm over the past decade, the problem is that most people buy after the surge is almost over. Then people tend to panic when it corrects or does nothing for any extended period of time.
This data when examined can help you with timing a buy for what I still see as a highly profitable long term hold.
Buy when open interest (number of futures contracts) is at or below 300000, buy when it has seasonal lows, usually in the May - July time frame, buy when it is closest to its long term moving averages, not when it is so far above them that you have a lot of short term price risk, which may cause you to panic. Lastly buy after a prolonged consolidation (sideways pattern) as explained below.
Based on the fundamentals and the data shown above. It is clear the best time to buy or accumulate heavily has been in the May-July time frames, preferably when open interest is below 300000, and after a eight to twelve month or so sideways consolidation, when it is closest to its long term moving averages. In my opinion that time is NOW. Protect your hard earned savings before it is too late, don't panic buy on the next surge.
Remember that Gold has averaged gains of better than 20% per year for over a decade, that growth has been better than 35% if you buy on a correction like this. As can be seen in the chart above the best time to buy is major consolidations like the ones in 2004-05, prices then nearly doubled from $400.00 to $750.00 then 2006-2007, gold went from $650.00 to $1,000.00 and again from 2008- 2009, the price did double from $900 to $1,800.00. In my opinion we are now set up for a similar rapid move up. The growth of money indicates that this growth will accelerate in the coming years. Don't wait to any longer to buy gold, the time is NOW.