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Gold: Buy, Hold or Sell?

Commodities / Gold and Silver 2012 Aug 29, 2012 - 11:22 AM GMT

By: Peter_Zihlmann

Commodities

Best Financial Markets Analysis ArticleIn 1980, the price of one ounce of GOLD reached $ 850. Today, the purchasing power of the US dollar is substantially less than in 1980. The price of one ounce of gold would have to rise to $ 2,550, assuming an annual average inflation of 3.5%, to reflect the value of the US dollar thirty years ago.


The long-term picture of the bull market since 2001

Gold 2000-2012

The bull market of the gold price started towards the beginning of 2002. On the way from $ 255.3 to the recent intraday all-time high of $ 1,921 (an increase of 760%), several significant corrections took place, the most severe one in 2008 when the gold price sank by 30% only to jump 165% to a new all-time high.

The bull market is not over! The gold price is well-established in its long-term up-trend and is no-longer overextended as it was in 2006, 2008 and 2011. The present momentum will likely lead the gold price higher in the short-term (two to three months).

As the PMO Indicator shown above clearly demonstrates is that extremes always will be corrected. In fact, we had great sell opportunities in 2006, 2008 and 2011. On the reverse side, 2001, 2009 were unique buying opportunities.

At present, we again have such a buying opportunity! This is not the time to stay on the sidelines.

You have to buy now!

The medium-term picture of the gold price

Gold 2006-2012

Critics of technical analysis include well known fundamental analysts. For example, Peter Lynch once commented, "Charts are great for predicting the past." Warren Buffett has said, "I realized technical analysis didn't work when I turned the charts upside down and didn't get a different answer" and "If past history was all there was to the game, the richest people would be librarians."

However, Warren Buffett also said: "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."

This is what above indicated tells you: No-one is interested! Therefore: BUY!

Should you own gold rather than gold shares?

Gold and gold shares do not always move in a parallel fashion. At times, gold is leading, at times the gold shares. From 2000 to 2006, the Gold&Silver Equity Index ratio fell by 40%, telling us that gold and silver shares outperformed the price of gold. Since 2006, the metal prices performed better. At present, the mining shares offer again a unique buying opportunity.

Gold/Pha Gold and Silver Index

Conclusion

The correction in the gold price has run its course. The secular gold bull market is likely to continue reaching new all-time highs in the next months. Shares of gold producers and explorers are as undervalued in relation to gold as in 2008 and are cheap based on their long-term average, therefore offering a unique investment opportunity.

By Peter Zihlmann

www.pzim.com
invest@pzim
phone +41 44 268 51 10
mobile +41 79 379 51 57

THE TIMELESS PRECIOUS METAL FUND is a shareholder in the company and will benefit from any increase in the company's share price.

How to invest: http://www.timeless-funds.com/en/timeless-precious-metal-how-invest

Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so.

Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell this stock.

Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock - or to use their own brains.

In our opinion, the best approach is to buy a diversified portfolio of stocks as represented in THE TIMELESS PRECIOUS METAL FUND or THE SIERRA MADRE GOLD & SILVER VENTURE CAPITAL FUND instead of shares of only a small number of companies.

Peter Zihlmann Archive

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