Gold prices finally hit resistance after coming within $12 of the
psychologically-important $1,000 mark. Tuesday's $25 decline was said to be caused by profit-taking, and has some investors worried that a deeper correction is about to ensue. I am one of those investors.
I don't anticipate that the decline will be particularly long or
severe, but a healthy drop to resistance at $900 seems to be in the
cards. Any way that you look at it, the downside risk is probably
greater than the upside potential at this point in time. Gold will
certainly break $1,000 this year, but we should keep in mind that gold is up over $300 or nearly 50% in the past six months.
Mainstream investors are still not buying the metal, gold is still not dominating headlines and thus, it is unlikely that we have reached the blow-off stage that takes gold past its inflation adjusted high of $2,100. While all of the fundamental reasons to hold gold are still in place, I anticipate a few pullbacks from the $1,000 mark before gold breaks decisively through it, and charges to new highs. Unless Chavez invades Columbia or Bush invades Iran, we are likely to see further price declines, and a short period of consolidation between $900 - $950. At the same time, the short-term trend channel shows that further upside is possible.
We have made minor adjustments to the Gold Stock Bull Portfolio,
locking in profits as high at 100% in key metals stocks, and
reallocating those funds towards short selling key sectors of the U.S. market, and overheated emerging markets. Even if the metals continue higher, this move was necessary to re-balance our portfolio, and we will look to reallocate towards junior producers.
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