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Precious Metals Poised to Move Higher

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All the sector needs is a very favorable technical juncture.

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This week the price of gold hovered above the $1,000 level and managed to close above this important level, a very significant and optimistic development for anyone interested in the precious-metals sector. But before we launch into euphoria and speed away, now might be a good time to look back into our rear-view mirror.

While we're looking back, here's some interesting research to put things into historical perspective. Back in November, a researcher by the name of James Bianco crunched the numbers, adjusted them to inflation, and discovered that the government bailout cost more than -- are you ready for this? -- the Marshall Plan, the Louisiana Purchase, the race to the moon, the S&L crises, the Korean War, The New Deal, the invasion of Iraq, the Vietnam War, and NASA combined.

The only single American event in history that even comes close to matching the cost of the credit crisis ($4.6 trillion) is World War II: Original Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion.

Keeping in mind that inflation is the increase in the prices of goods caused by the changes in the money supply, high inflation in the coming months and years looks like a sure bet.

Now let's take a look at how gold -- generally known as the best inflation hedge -- has fared in this turbulent year. On September 19 one year ago, the price of gold was $865. Over the past year, gold proved to be an excellent hedge at times of economic distress, and bounced with a vengeance after dropping -- along with virtually every other asset -- due to margin calls.

Contrary to the general stock market, gold is now much higher (and about to reach new highs) than it was back then. This fact is encouraging by itself. Combining it with positive fundamentals provides us with an even more bullish outlook. The only thing the PMs need to move substantially higher is a very favorable technical juncture. Are we there? Let's turn to charts (courtesy StockCharts.com) for clues.

Gold




From the long-term point of view, gold is in a favorable situation as it closed above the $1,000 level during the last four trading days, confirming the move above that barrier. It hasn't yet pierced through the 2008 high, but I believe it's just a question of time -- and in the not-too-distant future -- before we see the yellow metal break higher.

The RSI Indicator was just at the overbought levels and is still near 70, which in the past was an efficient tool in timing local tops, so the odds of a decline from here are rather high.
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Positions in gold and silver.
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