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Add Gold to Your Portfolio -- But Only on Pullbacks

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Bullion surging in all currencies.

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I argued the bull case for gold in my posts over the past few months (see Gold Bullion -- Regaining Its Shine?, Gold Bullion Glitters Brightly and Gold Bullion -- Challenging $1,000. With the gold price scaling fresh peaks and closing in on $1,100, it would certainly seem as if renewed interest in the yellow metal is being stirred up, especially subsequent to the purchase by India's central bank of 200 metric tons of gold from the International Monetary Fund.

As printing presses are running at full speed to produce ever-increasing quantities of fiat money as governments engineer the greatest asset price reflation in human history -- and the US greenback is heading South -- the longer-term fundamental case for the yellow metal is arguably positive.

More importantly, the gold price isn't only making headway in US dollar terms, but also in most major (and minor) currencies as illustrated by the table and graph below. This is a manifestation of increased investment demand, whereas the initial rise in the gold price from its low in 2001 ($250) was mostly a reflection of US dollar weakness.





Illustrating the message even more vividly is the chart below of gold expressed in a basket of emerging-market currencies by dividing the dollar bullion price by the Wisdom Tree Dreyfus Emerging Currency ETF (CEW).



The shorter-term technical picture is also looking interesting. This is explained by Adam Hewison of INO.com who prepared a short technical analysis of gold's most likely direction and key chart levels. Click here to access the video presentation.

Seasonally, the period from November to December has traditional been good for gold, with an average gain ranging from more than 1% to almost 2.5% since 1970.



I remain bullish on gold in the medium term, especially as I believe the vast money-printing by central banks could set off strong inflation pressures down the road. I wouldn't be surprised to see bullion remaining in a secular uptrend in the medium term. Add bullion to your portfolios, but given the notorious volatility of the metal, only do so on pullbacks.


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