I was preparing an article for today when I received the email below in my inbox. It argues that gold is likely done consolidating and ready to break out for a variety of reasons, a view that I share. The article then mentioned one of the author’s top stock picks for the back half of 2012, a stock that I also believe is undervalued and has huge potential gains going forward. So, instead of re-writing what would be essentially the same piece, I have made a few edits and republished the article with his permission.
Special Alert: Gold About to Break Out
Christopher Skidmore of Beat the Markets
I might be going out on a limb but I do believe that both the gold and gold stocks could be on the verge of a major breakout and today the POG has slammed through the $1600 wall indicating it has some real momentum for a rally. Gold may not be ready for a major breakout to $2000, but there is at least a good 6 to 8 week counter trend rally. There are several factors that lead me to believe that gold’s consolidation may be over, a bottom has been established and a break out is imminent:
Seasonal Strength – We are now entering the sweet spot for when gold is seasonally strong. Psychologically gold is cheap compared to last year and there was an absence of buying from traditional physical sources last year because of steep price increases. This year I expect that traditional physical demand for gold will pick up from last year from places like India and China.
Support at $1530 Could Not Be Broken – As much as the shorters tried, there is very strong support that could not be broken. I for one would no longer be short the yellow metal as there seems to be more people willing to buy below $1570 than there are sellers. This is another bullish sign, especially considering how well the price of gold has been holding $1570 over the last few weeks.
Technical Wedge Setup – The price of gold is going to move one way or the other with this setup. This is a major technical setup we are approaching over the next week or so and considering the level of support at current prices, it will take a major bad news event to move gold lower. This one factor that “All Roads Lead to Monetization” even deflation certainly in my mind keeps a floor in the price of gold. That floor seems to be $1530. If POG breaks this trend to the upside… there is at least a $100 move to a stronger trendline. This trendline analysis is setting up to almost the same type of break that the American markets made in December after the sell off when they came back with a thunderous roar. Keep your eyes peeled very closely because there is a lot of cash on the sidelines waiting to pounce in this market. There are many lovers of gold that are looking for any excuse to get back into the market.
The FED is Finally Going to Discuss the Merits of a Bond Buying Program – Hello? QE3 is finally on the table. Just rumors of the FED discussing QE3 will help re-inflate asset prices. I heard commentary that said there was nothing new to this rumor. These guys obviously didn’t read the article below because the major difference is that the FED has not discussed bond buying on a serious level since QE2. It was the bond buying that helped to inflate asset prices and the materials market specifically which will certainly happen again.
There has also been talk which I have mentioned months ago that the most likely form will be in bonds that are linked to the US mortgage market. I am not a debt guy but it makes sense that this time relief is aimed at the American consumer. Relief in mortgage rates and stimulus in this area could help re-inflate housing prices which is the biggest hit to the American consumer. If you can get house prices to where Americans have some real equity in their homes, it will help consumption in the US as well. I had thought the FED would be more reactionary and wait until the economy and markets were more in danger, while this move seems to be more proactive.
The rest of the world is ready for stimulus. China is talking stimulus. Even Europe is talking some type of stimulus although it never gets very far because no one can get along over there. Everyone realizes that if you want to deleverage without starving your citizens, you need to monetize at the same time you put in FAT CUTTING austerity measures. Angela Merkel is finally starting to speak of stimulus, which is a powerful sign considering she runs the Eurozone show.
Pretuim Resources (PVG) $1.4B Market Cap – If This Gold Stock is Not in Your Portfolio, You are Nuts.
For the second half of 2012, we are going to wipe the slate clean and focus primarily on gold stocks. Bear markets do not last forever and all of the stimulus planned in the coming months should eventually light a fire under the precious metals sector. With all of this monetization about to happen, I believe the biggest beneficiaries will be gold and silver. With so many stocks undervalued and oversold at the moment, I believe it is wise to go with the best-in-class producers. When the cream of the crop is as cheap as it is, there is no reason to seek leverage in lower tier companies. When looking at quality, I look at several factors including geopolitical risk. As Argentina has taught me this year, even perceived political risk can ruin a portfolio. So to start the second half of 2012, here is my top pick…
PVG continues to be the top dog of all dogs anywhere in the world. If this is not in your portfolio you are nuts. Today they intersected one of the highest grades intersections I have ever seen.
41,582 g/t au over 0.5 meters… that is one big nugget.
I have run through the numbers on this one several times. The resource will continue to grow in leaps and bounds and this mine will definitely replace Goldcorp’s Red Lake Mines as the top dog in Canada. Get in while the getting is good!