Gold’s Collapse Continues

As I write this, gold is trading at $1591 in the overnight markets, after trading as low as $1531. Surprised? You shouldn’t be. Gold was overstretched and needed a breather. I am actually starting to think we will see gold in the $1400 range.

Gold has monster corrections all the time, yet people are surprised when they come. Every time gold rallies, gold bugs say the world is ending and hyperinflation is imminent. This doesn’t make sense to me. Treasuries are hitting high after high, which means the interest payments on our debt are holding stable, and somehow gold is supposed to skyrocket? Let’s be objective here.

True believers in gold should take a one month vacation and not even look at the price of gold. When your vacation is over, buy gold at whatever price it’s trading at. I honestly believe this is a better strategy for most people than the alternative, which is to constantly monitor gold prices and buy and sell in an emotional frenzy. Let gold bounce off the 200-day moving average, then let’s start talking about a rally.

There is going to be a huge rally out of this correction. I foresee a substantial bounce off of oversold conditions before gold trends downward again. After a couple of months or so of consolidation, the rocket launch will arrive. I will say this again: gold shares are an absolute steal and I would be very surprised if you don’t triple your money by 2016 by investing in a broad gold index.

This is a dream come true to me. There is the very real potential of gold getting pummeled on a percentage basis beyond 2008 levels. How many times have you regretted not buying into that correction? You will have another chance to buy cheap, and if you don’t take advantage of this opportunity, maybe investing isn’t for you. Dividend yields on some gold stocks are approaching Treasury yields. What more do you want? How much more obvious can it get that it is nearing the time to buy?

Stay calm and let this correction run its course. Some time before 2012, it will be time to back up the truck in gold stocks. Be ready.

Gold’s Collapse Continues is a post from: Expected Returns

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