Gold Hits New All-Time Highs

Amidst all the hoopla about an economic recovery, gold and silver continue to rally to new highs. Silver in particular is defying gravity and is close to testing $40. Pretty amazing considering silver was $15 just last year. Something has got to give: either talks of the end of the debt crisis are just plain false, or gold and silver are in bubble territory. You all know what I think: gold is acting as a leading indicator to the problems that lie ahead. It will soon be time for the general public to be shocked by gold’s rise for the 2nd time in as many years. They will eventually join the party, but I believe that will come above $2000.

Gold made another marginal high today, although we have seen this before. I want to see gold hold at least $1440 before getting bullish. One or two solid tests of $1440 without falling back into the multi-month consolidation zone will be very positive for gold.

The incessant debates about the potential end of QE2 is somewhat immaterial to me as it pertains to gold. Gold’s rise will be a function of debt. Debt will rise as long as Congress refuses to cut spending. The Fed can buy up debt temporarily, but if Congress keeps on running deficits, QE3 won’t have any measurable effect on our debt situation. Quantitative easing actually incentivizes Congress to turn a blind eye to their excessive spending. Instead of thinking about how much government paper the Fed can buy, we should be thinking about things like cutting waste in spending, issuing interest-free bonds, and stabilizing taxes. Without practical solutions to this debt crisis, gold is going to go much, much higher.

As always, the key to profiting in the next monster rally is by not selling. The greatest gains are always made by buying, holding, then taking a walk in the park. The price action in gold has been a little wacky and I haven’t been able to catch every move, but at the end of the day, I’m doing fine because my focus is on buying the dips. I will usually  lighten up at extreme overbought levels, but I don’t get cute selling my position if we are in consolidation mode. For all intents and purposes, my gains with a slightly bearish stance are exactly the same as they would have been if I had a slightly bullish stance. Why? Because I invest with a long-term perspective.

Anyway, the majority of people still either give me a blank stare or scoff in disbelief when I give them very conservative projections of $2500-$2000 gold. Robert Prechter is still calling tops. The mainstream media still doesn’t get it. On the next breakout, I’m adding to my positions and then taking a vacation. Literally.

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