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Is This a Good Time to Get Back Into Gold?


Even very conservative investors think that it is.

Imagine a private room at a posh downtown restaurant. The guest list is invitation only and limited to the wealthiest clients of Bank Edmond de Rothschild, which specializes in private banking and wealth management. Rothschild is legendary with a reputation that has made the name synonymous with banking for several centuries. The family-owned bank has been passed down through generations and kept its reputation and solvency despite political turmoil, wars, persecutions, revolutions, and market upheavals. It has done so with what the Rothschilds like to call "instinctive caution."

Two leading in-house experts were flown in to meet with the clients at the posh restaurant to deliver a year's end economic report and a look at what's ahead. The title of the talk was "Back to Growth, But Not Yet Back to Health."

Although talk about gold was somewhere toward the middle of the lecture, I'll skip to that because that's what interests us the most. The savvy folks at the Edmond de Rothschild bank are looking at two target prices, the first at $1,500 and the second at $2,000. The reason is simple, they say, less supply and more demand with central banks being net buyers rather than net sellers. Please note that the first of these two targets is in perfect tune with what I wrote previously after analyzing the very-long-term chart of gold.

We've been a fly on the wall at an exclusive briefing by some of the savviest, most conservative and cautious investors in the world. And they like gold. So if super conservative investors like the people at Bank Edmond de Rothschild are on the gold bandwagon, does that mean we're close to the end of the ride?

You can do your own gold bubble test during this holiday season when you see lots of friends and family members at parties.

Ask people if they own gold, or if they know why gold has climbed from $650 to over $1,100 in the past three years and see what they say.

The average person has heard about gold on television and in the media, but has no idea why it's rising, who is buying it, or how far previous bull markets took precious metals in the past. They might even like to buy it, but don't really know how.

Baron Benjamin de Rothschild writes in a letter to the bank's investors that the Chinese word for "crisis" is written with two ideograms, one meaning danger and the other opportunity.

I hope that in the coming year we'll avoid danger and embrace opportunity. The best way to do that is to see what the charts can teach us. Let's begin with the gold chart:


The long-term chart didn't change much since I posted What Happens to Precious Metals if Stocks Plunge? Back then I wrote the following:

Taking a closer look reveals one more support level -- the $105 level in the Gold ETF (GLD). This is the price that stopped the initial post-$1,000-breakout rally, and it currently corresponds also to the medium-term support line. This may stop the decline for awhile (and both indicators on the above chart, RSI and Stochastic, confirm this) ...

The above also applies to this week, but please note that this time the price of gold is very close to the long-term support level (rising thick blue line) -- the aforementioned $105 level. It's also currently in the area marked with a red ellipse, which suggests that the bottom may be very close.
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No positions in stocks mentioned.
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