Don't Sell Gold
By Ian Cooper | Friday, June 8th, 2012
As investors send the dollar screaming to new highs, they're forgetting one thing...
A 5% move up in any currency in just weeks is an unsustainable move.
It can't last.
It won't last.
Just look at the chart:
The dollar is also topping out at overhead resistance, and there's a very real possibility of QE3 this month.
Investors are far too dollar bullish. They're selling stocks.
They're selling gold and silver — and that's the worst move they can make.
Conditions that supported gold's move higher over the last few years have not changed.
Greece is still on the verge of collapse; bank runs continue in Spain.
U.S. growth was just revised down... Consumer sentiment is in the toilet... Housing prices are still, uh,“bottoming”... Unemployment is soaring... And industrial production is nothing to write home about.
Last Friday's jobs number alone sent gold up close to $60.
And as unemployment worsens heading into November's elections, we'll see another round of quantitative easing — which will send gold higher.
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Not only is the Fed under pressure to get U.S. growth up and running again, but the global system is under such strain that the scale of intervention necessary will be very supportive of gold going forward.
The global financial market is up to its armpits in one of the most bizarre crises in history — no sooner does the dust settle in one part of the world than another crisis pops up.
Yet, investors have been dropping gold and silver from their portfolios...
Bad move.
While Bernanke didn't promise imminent Fed action on Thursday, he also didn't squash any hopes for QE3.
Bernanke stated yesterday economic growth is expected at a moderate pace... and that "more rapid gains in economic activity will be required to achieve significant further improvement in labor market conditions."
While it's still unknown how economic activity can be sped up, we can imply from Bernanke that more Fed action is necessary.
FOMC voters like Janet Yellen have cited housing risks, the jobs market, and horrendous financial conditions as reasons for further Fed action.
Others like Dennis Lockhart seem to be on board, too...
"The situation we face requires that the FOMC maintain a state of readiness to respond to financial or economic instability should the need arise,” Lockhart said.
So it's quite possible Bernanke shares these fears — but doesn't want to give away too much ahead of the FOMC meeting later this month.
Another possibility, says the NASDAQ, "is that these central banks are gearing up for coordinated action and want to keep it a surprise. The decline in jobless claims won't be enough to convince the Fed that additional easing isn't necessary."
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As investors foolishly run to the dollar, gold may pull back a little more before moving higher on dollar devaluation.
I'd like to see gold eventually challenge that bearish gap down at $1,800 over the next few months.
With that in mind, I'd position my portfolio for the coming move with gold stocks, mining stocks, and even ETFs.
Silver is at triple bottom support with buyers' support.
Every time it gets this low, we see a challenge at $35...
Deterioration of the dollar could send us there in the next few weeks.
Stocks such as these are always a good bet.
I'd also pick up call options on the Global X Silver Miners ETF (SIL) and the iShares Silver Trust (SLV) to benefit further.
Finally, I'd look into buying PowerShares DB U.S. Dollar Bearish (UDN) put options in anticipation of a global Fed move.
Stay Ahead of the Herd,
Ian Cooper
@IanLCooper on Twitter
Ian Cooper has been trading stocks and options for 12 years. He contributes options, stock, and energy commentary to Wealth Daily, Wealth Wire, and Options Trading Pit. He's the Coach behind Options Trading Coach, a beginner's guide on how to trade options. Ian teaches thousands of loyal subscribers the many ways to be profitable from options rather than simply buying stocks alone. For more about Ian, take look at his editor's page.
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