With little fan fair and even less real acknowledgement gold broke past its 1980 record high. Few, if any, thought that this precious metal that is used in so many industrial products could ever break past the psychological, $900/ ounce number. With gold production costing $238/ounce everyone knew there was room for growth, but not to what extent.
While the $900 number is significant, gold's real potential far exceeds it. Adjusted for inflation gold's 1980 high would equate to approximately $2,400. This means that gold's recent ascent is barely half-way to reaching as high as it possibly can. While there is pressure for gold to ease, from all fronts, there is little in the way of confidence in disposing of it. India, the world's largest importer of gold, is fighting with the inflationary effects that gold has on its economy as well as attempting to maintain consumer confidence in purchasing the metal in the face of a clear bubble.
In the United States we have had two bubbles spring on us back to back. The dotcom bubble, the current housing bubble, and the soon to be commodities bubble. Each bubble lasted for years and when it was all over everyone acted as if they couldn't see the writing on the wall. The same thing is happening now. Gasoline at the pump has reached $3.50 in some places, corn prices have tripled in value, and we are staring at the weakest US dollar in history.
The question you have to ask yourself is, "Is this about to end?" so far the resounding answer is "NO"! Yesterday, gold gained back all of the value it had loss and then some. Moving over $20 in one day. Apparently the hedgers are still heavily bearish, to the tune of 252,275 contracts. When looking at the charts the technical indicators are showing that the bears are not having any real affect. With the RSI barely above 70% there is still some room for the market to move up. Couple that with the 50 day moving average and we can clearly see the bulls have got this one by the reigns.
It doesn't mean that there won't be a few hiccups along the way, nevertheless it would be no surprise to see gold reach $1,500/ounce by the end of the summer. The question is how do you best take advange of such an expolosive market? Very carefully! Naked positions - options or futures - won't make the grade. Collars, synthetics, options as stops are all perfect tools. Add to that the necessary level headedness to avoid or at least twist the herd mentality on its ear and the gold market can become accessible once again.
