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2012/04/13

Gold Bears Are Roaring

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Todays DWR

Gold Bears Are Roaring

by Justin Bennett, Editor

The bears are at it again…

They're all over the business channels calling a top in the gold market. These ill-fated analysts proclaim the yellow metal has finally peaked… and we're about to see a bullion blowout.

What's their reasoning?

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They have their usual objections.  You know, silly things like- gold has no useful purpose… it doesn't produce anything… blah, blah, blah.

But their biggest complaint is how to value it…

In their book, there's only one reason investors buy gold- so they can sell it to another sucker at higher prices.  And now that the market is running out of suckers, the gigantic gold bubble that's been building over the past 10 years is about to pop!

Wow, that's an interesting theory.

The funny thing is, I remember them saying the exact same thing when gold traded for $600… $800… $1,000… $1,200… and $1,500 an ounce. Obviously, they were wrong since gold surged to $1,900 last summer.

Take a look…

GOLD Chart

As you can see, gold's had quite a run.  Plenty of pessimistic bears have been skewered trying to call a top in this raging bull market.

But nothing goes straight up forever… even gold.

Gold's dropped from $1,900 to $1,670 in recent months.  And that's precisely why bears are roaring about a coming collapse.  To them, the recent pullback is a clear sign the yellow metal's amazing 10-year bull run is over.

If you're in that camp, listen up…

Take a look at this chart of the US monetary base, courtesy of the St. Louis Federal Reserve.

BASE Chart

See that blue line?

That's the amount of money the Fed's poured into the US financial system to keep the economy from tanking.  As you can see, the Fed's been very busy over the past three years.

I can't say I blame them though…

When the 2008 financial crisis hit, the Fed had no choice but to prop up the US financial system.  Otherwise, our country would have collapsed into full-blown depression.

But due to the Fed's action, the US monetary base surged from $800 billion in 2008 to about $2.7 trillion as of April 4th, 2012.  This enormous expansion is part of the reason gold's gone through the roof in recent years.

The question now is, will the Fed keep the pedal to the metal?

Fed Chairman Ben Bernanke is using extremely low interest rates and quantitative easing (QE) to spur the economy.  And he's already stated 0% interest rates will be around until 2014.

So that leaves us with QE.

After two rounds of the highly inflationary form of stimulus, will we have another?

It's THE question every economist in the world is trying to figure out right now.  Many feel the Fed is done with QE since the US economy is strengthening and unemployment numbers are dropping.

But I'm not so sure…

Last month the economy added a mere 120,000 jobs- well below expectations of 201,000.  If job growth continues to underperform, it's a safe bet Ben Bernanke will apply more QE.  And it's this relentless monetary easing that weakens the US Dollar… and sends gold higher.

So, where's gold headed in 2012?

As of last night's close, the yellow metal is trading a mere 12% below the all-time 2011 highs.

In 2008, gold fell a staggering 30% before bulls stepped in to take the metal above $1,000 an ounce.  Using the 2008 correction as a road map, gold could theoretically fall to $1,370 before resuming its long-term uptrend.

But I don't think it will get anywhere near that price.  Gold bulls stepped in with force at $1,550 a few months ago and they'll do it again if they get the opportunity.

Bottom line…

I wouldn't be surprised to see gold rise to $1,900 before the end of the year.  The bull run isn't over and gold bears are about to be burned once again!

*** Editor's Note*** Subscribers to my Commodity ETF Alert service have made hefty profits trading gold.  If you'd like to discover how to invest in the gold market with ETFs, click here.

Until Next Time,

Justin Bennett

Issue Date:
Friday, April 13, 2012


Notable Highs and Lows

•  Las Vegas Sands (LVS) popped to a new 52-week high of $62.09.  Their market cap is now over $44 billion.

•  Terra Nitrogen (TNH) surged to a new 52-week high of $285.84.  They have a market cap of over $5 billion.

•  Newfield Exploration (NFX) dropped to a new 52-week low of $32.25.  Their market cap is now $4.5 billion.


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