In the past week the gold price has been highly volatile. After reaching a fresh 26 year high of US$730 an ounce, the precious metal has retreated to around US$655. As a result shares in companies across the sector have come under heavy selling pressure. Whilst sharp and unnerving, we do not believe the recent pullback is cause for alarm. Keeping the latest move in perspective, gold is still above levels of only four weeks ago.
-------------------------------------------------------------------------------- "The key for any investor is to identify investment themes early and then to stay invested throughout the bullish cycle."
We regard the recent correction as nothing more than a pause within a long term bull market. One of the characteristics of bull markets is that corrections are usually torrid affairs. We remind Members that a bull market is labeled as such because it is very difficult to ride for long periods of time. The 'bull' will do all he can throw investors off his back.
Once sidelined, making the decision to get back on the bull is extremely difficult. We outlined our strategy for riding the gold bull in FAT275 and we remain firmly of the opinion that sticking with the long term trend is the optimal strategy. Trying to consistently pick tops and bottoms is an impossible task, in our opinion.
Although not easy to endure, corrections are a healthy feature of financial and commodity markets. Sustainable trends never travel in a straight line with corrections periodically acting as a counterbalance. The purpose of a correction is to restore the equilibrium between buyers and sellers.
Before time has sounded for the bulls we expect gold to rise significantly above US$1000 an ounce. As we have often stated, bull markets generally travel much further than anticipated. Indeed our target price may ultimately prove conservative.
The key for any investor is to identify investment themes early and then to stay invested throughout the bullish cycle. This is easy in hindsight but unfortunately a lot more challenging in practice. However history has repeatedly demonstrated that investors who stay the course of an upward trend reap the greatest rewards.
Fat Prophets has maintained a bullish view of gold and gold stocks since 2001. Our focus has been to capture the 'big move' over a period measured in years rather than months. We have not tried to 'time' the market by selling during rallies and then buying back after a decline. In our opinion, such a strategy invariably leaves the investor out of the market at precisely the wrong time.
The other important point to make is that corrections typically create buying excellent opportunities.
