WEDNESDAY, MAY 12, 2010
Gold Is Still Golden
By STEVEN M. SEARS
The fundamentals remain strong even as the yellow metal breaks record prices.
GOLD IS ONE OF THE FEW investments that appeal to people who fret about the value of paper currency and those who also take delight in stockpiling canned goods. But it's also an asset that makes sense for the rest of us, even at today's record prices.
Following the European Union's decision to spend about $1 trillion to stabilize weak European economies, gold is now openly being talked about as an important reservable asset, second only to the dollar, as opposed to just its usual description as a store of value.
This bodes well for the price of gold, and even some gold stocks. Gold recently traded above $1,240 an ounce, a record price.
Dennis Gartman, the influential macrostrategist and money manager, recently told investors in his eponymously named newsletter that gold has become a bona fide currency.
Indeed, trading fundamentals support buying gold -- even at its record-high prices. Goldbugs are heartened that gold hasn't advanced recently on too much panic buying, since that kind of buying is often accompanied by a quick, sharp decline when the "hot money" cools.
Larry McMillan, president of McMillan Analysis, a trading advisory and money-management firm, is telling clients that gold and silver stocks, and the metals underlying them, dominated Tuesday's positive volume and price charts. He told his clients to buy NovaGold Resources (NG) June $7.5 calls at $1.45 or less to trade the theme.
The stock was recently trading just below $9.
"The fact that the stock has now recovered above last week's highs constitutes a momentum buy signal, which is an additional positive reason to own the [stock or call]. Stop yourself out on a close below $7.75," McMillan advised.
For now, the goldbug trade is alive and well. At some point, the mania for the yellow metal will overtake all market fundamentals, so it is important to watch gold stocks, and the metal, with a jaundiced eye so that you don't ride the price up, and also down. At some point, even gold trades must be converted back into the world's primary reserve currency.
"Such is the nature of these sorts of things," Gartman wrote, "and gold with its strange psychological 'hold' upon people almost everywhere is perhaps the most prone to this sort of action."
Copyright 2010 Dow Jones & Company, Inc. All Rights Reserved
0 comments:
Publicar un comentario