For Now, Donít Worry About Gold
The recent decline in gold has been shocking to those of use who have gotten used to the idea that we are in a long-term bull market. However, it is important to recognize that the monthly average price of gold rose very dramatically above both the 20-month and 40-month moving averages shown in the chart above. In fact, so long as the monthly average price can hold above these major averages, we view the bull market as remaining intact though we must candidly admit that if it fell close to the 40-month average of $662.34 we would squirm quite a bit. The 20-month moving average is at $780.34 and we came close to testing that average on a daily basis on August 15th when the London P.M. Fix fell to $786.56. If gold can remain above that 20-month moving average I will not only feel relatively secure about this gold market but believe it will have been a healthy shakeout of gold from weak hands. As Richard Russell frequently points out, the purpose of a bull in a bull market is to throw as many people off his back as possible.
The latest correction was a humdinger in that regard, especially when it comes to the junior mining sector. We see this as representing a golden opportunity to buy some gold junior gold stocks though until we are convinced we are out of the deflationary woods, we want to focus on companies with more advanced stage projects and especially those that are in production or are cash rich and do not need to raise more equity at least until the market improves.
August 22, 2008
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
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