I cannot count the number of emails I receive from so many worried readers concerned about the direction of the gold price. If gold travels in a straight line up hill then it is rising too fast. If gold experiences a correction then the gold bull is dead and gold is soon to crash. 

Give me a break people.

Do you realize that it was only last December of 2005 - last year - that gold broke through 500 dollars an ounce? Look real well at the chart below and you will agree with me that gold began to climb very rapidly after surpassing the 500 dollar mark. 

And now this past year for most of 2006 we have experienced a correction and a pulling back of the gold price to close to 600 an ounce. I believe as we enter the final phase of 2006 that we will yet see gold rekindled and move forward with vigor again. 

This past six months has been an excellent time to get repositioned in gold and silver stocks.

Now September is right ahead of us and we should begin to see a renewed activity in the financial markets as things return to “normal.” Gold has not finished its long run so do not become complacent. Gold thrives in dark times and we still have many dark days ahead of us. 

Consider that the last magic bullet is quickly fading to oblivion. And the last magic bullet of course was an inflated housing market whose bubble is finally pooped and quickly leaking. The housing market boom is over now and the repercussions of this last expired magic bullet are only now beginning to be felt by the economy.

“Sales of new homes in the United States dropped in July by the largest amount since February while the inventory of unsold homes climbed to a record high. Piling on more proof that the housing boom is over, the U.S. Commerce Department reported Thursday that new home sales fell by 4.3 per cent last month to a seasonally adjusted annual sales pace of 1.072 million units. The decline was the largest since an 11.5 per cent plunge in February.” “Analysts expect home sales to drop by some 10 per cent this year.” 

The significance of the end of the housing boom cannot be over stated.

Puru Saxena – 

“I've been warning about housing for several months now and still urge you to get rid of your investment properties. In my opinion, we are in the final stages of the housing-boom and (once again) the majority of people can't foresee this change. The warning flags are everywhere!” “So, to re-iterate, my sincere advice to you is to liquidate your leveraged properties and invest in the world of natural resources where the bull-market is still in its infancy! A mega change is currently underway and over the coming years, I envisage major capital flows from financial assets to commodities.” “In my view, every investor must allocate 20-25% of their total net-worth to precious metals. This may sound extreme but in a world where central bankers continue to inflate the supply of money, gold and other precious metals offer the best wealth protection.” “Precious metals are in a gigantic bull-market, which is likely to continue for as long as monetary inflation remains the norm.” “In my opinion, the worst is behind us now and this is an ideal time to add to your positions in precious metals.” 

After the market crash five years ago money was pumped into real estate to keep the economy going but as this housing market cools and dies on the vine there are no more quick fixes the Federal Reserve can apply as in days past. Greenspan’s magic is forever gone and a new harder reality is slowly penetrating our financial world.

Dave,

“Please help a little investor understand something. It seems as though higher inflation that triggers higher interest rates moves the dollar higher and forces gold lower. At the same time I thought gold was an inflation hedge. I am starting to lose a bit of faith. Everyone seems certain that the big fall rally is right around the corner. Doesn't that by definition mean it won't happen? Everyone also seems certain that new highs are "just a question of when not if". Again, that doesn't bode well for gold on a sentiment basis. Today gold bounced off the $613.00 bottom range and I wonder if it goes to 605 do I sell? In the meantime my head is about to explode. Help!” - AA

AA, you worry too much.

This market is going to be extremely volatile as all bull markets are accompanied by volatility. Really, all I can say is that if you cannot take the stress of watching prices oscillate back and forth maybe for peace of mind it may be best to sit on the sideline. It does take nerves of steel to hold on through the corrections but that ability to persevere is what separates the winners from the losers. And there are always more losers simply because most folks do not have adequate nerves to ride through financial storms. 

But seriously folks, where is the gold price heading this fall? Bill Murphy’s Newsletter seems to spell out best gold’s present direction.

Le Metropole, Mahendra - 

"From last year I have been predicting a great rise in metal prices after September 2006, and we are just a few weeks away from the start of this period. This period will last for about one year, though of course it doesn't mean that metals will rise all of the 365 days. It could actually take 3 to 14 weeks before it strongly marches ahead."

Remember Pat Buchanan? Don’t see him much anymore. He has a new book out recently that is quite interesting. Pat must read these web sites for material.

Pat Buchanan, State of Emergency, 2006 - 

“As Rome passed away, so, the West is passing away, from the same causes and in much the same way. What the Danube and Rhine were to Rome, the Rio Grande and Mediterranean are to America and Europe, the frontiers of a civilization no longer defended.” “The children born in 2006 will witness in their lifetimes the death of the West."

Mary Anne & Pamela Aden – 

“Commodities are a hot item and they are set to stay in high demand for years to come.” “The world, especially China, has been growing and using lots of raw materials. China’s commodity imports alone have grown more than tenfold over the past 15 years…” “…commodities will continue to outpace the limited supply in the years ahead.” “…investors are moving into gold…” “Trading of commodities in general has doubled from 2001 to 2005…” “This sector is growing and it’s set to continue growing in the decade ahead. This is part of the 200 year commodity cycle that we’ve often discussed. And it’s why we will continue to recommend gold, silver and their shares, as well as energy and resource shares for as long as the major trend lasts.” 

Dear David:

“Many people are being "brainwashed" by Kudlow and Cramer into buying more paper assets. CNBC and Kudlow officially announced gold "dead" when it went back under $600 oz.”“…the smart money is buying up all the precious metals, yet average Jane and Joe American are mired in debt and have been brainwashed into thinking gold is dead…”

Eric Y.

Now really is the best time to add gold and silver stocks to your portfolio. We have been in “correction” mode these past 6 months and I believe this fall we will clearly exit the correction and observe gold climbing higher again.

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David N. Vaughn
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