THE GOLD BULL MARKET IS INTACT

The recent drop in the price of silver and gold has been very healthy for the precious metals market. It is good for the market to give itself time to consolidate its gains before moving to  higher prices. Corrections are good opportunities to add to long positions over the coming months.

There are plenty of reasons to buy gold now :
Stagflation is unfolding worldwide, the eurozone is experiencing higher inflation while economic growth is trailing expectations. Ireland, Greece, and Portugal are basket cases, while Spain is holding on by a thread. ECB is raising rates to alleviate their inflation problems, the net effect being to put more pressure on the PIGS while strengthening the Euro which is hurting economic growth.

The U.K. is almost a basket case with inflation close to 4%, while economic growth is barely positive. Bank of England is frozen in place, if they raise rates too soon to combat inflation they will damage the economy.

The BRICS are battling high inflation by raising interest rates, and are not getting the results they expected . China raised interest rates multiple times since October, as well as a number of increases in the reserve requirements for the banks.

In the U.S GDP dropped from 3.1% in the 4th Quarter of 2010 to 1.8% in the first Quarter of this year. All inflation measures are on the rise PPI is over 5%, import prices over 9% and the CPI is approaching 3%.

According to the St. Louis Fed numbers, the Adjusted Monetary Base is increasing at a rapid rate, in the first 3 months of  2011, the monetary increase was almost 30%.

Central Banks from Russia, India, China, Mexico, Bolivia, Sri Lanka  made recent purchases, while the developed countries central banks have discontinued their sales. Gold has reclaimed its role as the ultimate store of value and a monetary asset.

It seems like the gold bull market is very much intact because we are in the very early stages of a stagflationary period. Because of the high price volatility expected, you should plan to accumulate gold positions over the coming months in one of the ways explained on this blog.