Here's a great question from a reader...
Q) Hi Ed, I read you in the Singapore newspaper today and have interest in the things you wrote. You said in today's paper that we should not hold USD but hold things that are valued in U.S. Dollars. I also listened to the CNBC interview in April, about gold possibly dropping to $800 per ounce. I am new to gold investments and am curious and want to learn why you said that because the two pieces don't seem to fit together in my mind.
Ed Ponsi) Thank you for your question. I think the recent fall in the price of gold is just a pullback within a larger uptrend; the question in my mind is how far will the pullback run before the uptrend resumes? Gold has been a terrific investment for the past few years, and if Bernanke and the Fed continue to cut interest rates and pump liquidity into the markets, the U.S. Dollar should continue to fall and conversely, gold should continue to rise. On CNBC, I was asked for a shorter term perspective, and I was presented with a chart that reflected that. Gold is still well off of its highs, and could pull back further in the short run. A quick look at the gold daily chart reveals what appears to be a head and shoulders topping formation, a bearish reversal pattern that foreshadows a potential deeper pullback. Gold is also maintaining its position solidly beneath its 20-day exponential moving average, another sign of weakness. There are several potential support levels, with one of them being the technical and psychologically significant level of $800.
I still think a break of the $850 level could result in a pullback to the $800 area, because very little support was created during the quick run higher. The March spike above $1000 proved to be short-lived, leading to profit taking and a pullback, but in the long run, gold and other commodities probably will continue their ascent. Thanks and good luck!
