Tuesday, January 29, 2008

Gold breakout

In a previous post I pointed out that gold had broken out to new all time highs. I also quoted historic averages that once a commodity breaks out to new all time highs the average gain has been 180%. Tonight I'm going to show you what has transpired already in oil and what could be unfolding in the precious metals markets right now.

The first chart is a long term view of oil. Notice that once the all time highs of $40 were broken oil only dipped back below that level once and then only very briefly. After that it tested the $40 breakout once never to be seen again. At $100 oil has tacked on 150% above the old highs.

Moving to the next chart we see that gold has now also broken to new highs. It has also tested the breakout level. While anything is possible there is a strong probability that we will never see $850 again for years to come. Now is not the time to lose your position in gold. If we get lucky and it does pull back then buy more. I'm not very confident that we are going to get that option though. I'm definitely not willing to lose my position on the hopes that it will pullback below the breakout level. Even if it did how would you know when to buy? I dare say most people let their emotions control them when an asset is going down and is on sell they are to afraid to buy.

If gold was to only match oil and move up 150% that would give us a gold price of $2125. However I think it will move up much further than oil will because it's much easier for the public to buy into the gold market. When the public finally catches on and they will catch on eventually they are going to push gold prices into the stratosphere. A buy and hold strategy will guarantee you will capture all those gains. Trying to trade the PM bull will most likely guarantee you will miss most of those gains. If you want to become rich from this bull market then you have to be willing to do what it takes to ride this bull.