The precious yellow metal is sizzling on the price charts, as traders shift capital from the higher-risk equities to the safe-haven sanctuary of gold.
The U.S. is battling crippling debt levels and deficits. Some cities across the nation are shutting down to save money. The once powerful U.S. economic engine continues to show breaks and is stalling at this most critical time for the country.
Over in Europe, we have the PIGS (Portugal, Ireland, Greece, and Spain) sucking money from the European Union and International Monetary Fund and taking away the ability to focus on growth.
We are also seeing some economic fragility in the BRICS grouping (Brazil, Russia, India, China, and South Africa). Brazil, India, and China are seeing some stalling in their economies and stock markets.
In China, you have inflation surging to 6.4% in June, the highest level in about three years. The Chinese central bank has increased the bank reserve ratios in an effort to stall lending. Slowing in China has an impact on the domestic and global economies that deal with China.
Domestically, you have a national debt of $14.5 trillion and this will grow to over $16.0 trillion with the debt ceiling increasing.
Given all of this risk, you should have some capital working for you in gold.
Gold is considered a safe-haven play versus that of silver. Investing in gold is a safe haven play when the overall market risk rises, as what we are currently witnessing.
On the demand side, China is a significant buyer of gold and this is expected to continue as the country hoards physical gold in its reserves. India is also a major buyer.
The reality is that gold is a limited resource that needs to be found and mined. There is a certain amount of global reserves in the ground, but, after that, there needs to be more exploration.
Gold has rallied in each of the last 10 years and shows a beautiful bullish price chart. My gold advice would be to accumulate gold on weakness.
On the chart, the October Gold traded at a record high of $1,683.50 on August 4 before retrenching. The current chart looks bullish on strong Relative Strength. There is a "golden cross" on the chart, with the 50-day moving average (MA) of $1,558 well above the 200-day MA of $1,451.
Some pundits have come out and suggested a $2,000 target on gold over the next few years. I even saw a staggering $5,000 price target on gold. Now the latter may be an extreme, but I feel that gold prices will continue to edge higher, especially if the U.S. economy falters and another recession surfaces.
In the current climate, gold represents the best bet, while silver continues to be a trading commodity based on the economic recovery and demand for electronics and industrial applications.
My advice to you is to buy a mixture of exploration-stage gold miners along with small to large gold producers. In this scenario, you can play both the potential aggressive gains of exploration stocks and the steady returns of the large gold producers.
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