Red’s POV on all of this Noise about a Gold Bubble

Gold may be a bit over extended in, but it is not a place to make a Bearish call IMO.

The Gold Bears had a shot the Gold price last week, when Gold put in a temporary Top at 1911 oz and began it healthy correction. It tapped 1709 three days later.

That 10.5% fall did not drive the Gold Bulls away, the Gold players saw the dip as technical mark to start buying again, and Gold’s has rallied 7.3% off that low. And during the rebound the CME raised the margins for the 2nd time in less than a month

If a player/investor is in Gold, and the wisdom is that all portfolios should have at least a 10% stake, the Big Q, and the only Q that matters is this; are the majority of other traders convinced about the upside of Gold that they are going to keep buying it.

I believe that the Big A to that Big Q is; Yes.

Remember this, Crude Oil, Real Estate, and Tech stocks may have all seen “bubbles” at one point, but there was very good money to be made while the price was inflating because traders believe in the action

So, now it is Gold’s turn to run and run hard North.

IMO the reason the market’s been buying Gold since the end of  Y 2008 is here now.

And that reason, as I  have been saying in my reports since then is Inflation, a word that no one seems to want to hear but is essential to growth in any economy as I see it.

As of April 2011, the average annual inflation rate in the USA has come in above 3.0%.  Since May it is in above the long-term average annual inflation rate of 3.43%, so let us face facts, the US government’s calculation of inflation is optimistic.

Friends, that fact by itself bolsters Gold’s biggest buyers (the central banks), and that means that the Gold story is a long way from over.

Once inflation kicks in, it will last for some time. And now, in that US Fed Chairman Ben Bernanke is not planning to raise the Key interest rates off of Zero, inflation is a given. Raising the interest rates will normally dampen the inflation rate brakes.

All that said, how high can Gold go? Technically based on the Fibo numbers the big picture is targeting about 2,747 or so.

I write a Gold, Silver and Crude Oil Report twice weekly and lay out the overall fundamentals and technical’s.

From that report a player can make calls for entry and exits depending on their Plan and their tolerance for risk.

I am staying Bullish on Gold as long as the Key support at holds, and see Gold moving into to and past 2000, the psych mark.

This is from my Mid-week Report, as follows;

It was a uneventful session for Dec gold, which settled slightly lower at 1831.70 oz,… 1766.4, the minor support intact, Gold’s rebound from 1705.4 is in favor to continue North. I expect Strong resistance at 1917.9 to limit any upside, and bring another fall to continue the consolidation. A clear break below 1766.4, the minor support, will turn the bias back to the Southside for a target of 1705.4, Key support, and possibly lower. But, a clear break of 1917.9 targets 2000, the psych mark, next.

Just because people are hearing and reading lots of stuff on Gold that has a negative tone the fact that it has charged North on strong data for some time now IMO will continue to do so as it may be just the beginning.

Stay tuned…

Knowledge is Power.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.