Wednesday, December 2, 2009

Close to meeting the final condition for a gold breakout

Although it is totally obvious that gold has made strong price advances in the past few weeks, I thought it was worthwhile to mention the three conditions that I felt were needed for a sustainable gold advance. The first and most obvious, was for gold to break and hold above its previous nominal high of $1035. This happened in October. The second condition, which was met in November was for the dollar index (dx z9) to hit 75. The third is for silver and the gold equity index to break to new decade highs (~$21.5 in silver and 520 for the HUI.) Although this still has not occurred, we got very close to a new high in the HUI today (516.6).
It is also worth mentioning that in the past week gold has made and sustained a new all time high in euros.

The most important rule in money management is to establish and follow intelligent and appropriate levels of leverage and the use of debt/margin. A level of margin that is appropriate for one asset class, is most certainly inappropriate for another. Financial crisis is almost always born out of using too much leverage for a given asset class, or making false assumptions about future valuation/income. The market where this was most obvious in the past decade was the real estate market.

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