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Commodity Investing

Where Next for Gold? Chris Weber Reveals the Answers…

Founder of The Weber Global Opportunities Report
Wednesday, February 16, 2011: Issue #1451

At an age when most of us are more interested in dating and getting a driving license than the stock market, Chris Weber started investing when he was just 16 years old. Using the $650 he’d made delivering newspapers, Chris was a millionaire by the time he was 45.

Chris Weber is a long-time friend of Investment U and is the man behind The Weber Global Opportunities Report. He’s also one of the most respected voices in the precious metals market.

Despite an historic run over the past decade, gold has sagged recently, suffering the worst start to a year since 1997. So is this the dreaded correction that everyone’s been waiting for, or merely a blip? We asked our Senior Researcher, Matthew Carr, to touch base with Chris in an effort to get to the bottom of the story for us. Here’s what Chris had to say…

Matthew Carr: Should investors be worried about gold’s performance at the moment?

Chris Weber: No. After gold more than doubled from $693 in October 2008 to over $1,420 in December 2010, a consolidation – at the very least – must be expected.

Matthew Carr: So how would you classify the current retreat for gold prices? Is it a “pullback” or something more serious like a “correction,” where the price could head lower over the short to mid term?

Chris Weber: I haven’t even considered gold’s action so far this year as a correction. Not until, and unless, gold breaks below $1,280. This would mean it would’ve fallen at least 10%. And if it stays above that, I’d consider it a “consolidation” and perfectly normal. As to what it will do in the short to mid term, I really don’t think in those terms. I’ve thought it would consolidate and perhaps even correct until the bull move is ready to start again, however long this takes. It’s more a matter of price action and psychology than a set period of time.

Matthew Carr: Do you think silver will outperform gold again in 2011?

Chris Weber: Silver almost always goes further than gold does, either during bull or bear moves. My default position – until proven otherwise – has been since the start of 2011 that gold would, at the very least, consolidate. Thus, I’d expect silver to be weaker than gold during any period of softness. So far this year, this has been exactly the case. Gold has, so far, fallen only 8% at its worst. Silver, on the other hand, has fallen 13.7% from its highest close at the very end of last year until January 31.

Matthew Carr: What’s your outlook for gold for this year? Do you think we’ll get back above $1,400 again soon?

Chris Weber: In 2010, gold’s price (in U.S. dollars) rose for the tenth consecutive year. I haven’t been able to find any major market in history that has done this. The closest has been the Dow Jones in the 1990s, which rose for nine consecutive years. Given this unprecedented price action, it wouldn’t surprise me to see gold’s price decline over 2011. It’s already beaten the odds and if people start to expect continued price increases, they may well be shocked if it doesn’t happen in 2011. I haven’t sold any of my gold, but wouldn’t be surprised to see it stay below the $1,400 mark this year.*

Matthew Carr: Why is that, Chris, and what’s on your radar that could have the biggest impact on gold’s movement?

Chris Weber: The most important thing is the price action itself. Normally, with any asset that’s soared the way gold has in recent years – with no true correction – it’s typical to see at least a consolidation for some time. It’ll be fascinating to me to see just how much gold gives up, and over what period of time. Gold’s already moved into uncharted territory in its 10 consecutive years of gains. Therefore, I’m very wary of trying to forecast what it’ll do when. Much more important than what I think is to watch the price action itself. This will tell the story. If the recent lows of $1,308 turn out to be the absolute lows for this consolidation, then we’re looking at a gold bull market of unheard-of power going into the future.*

Matthew Carr: Chris… we’ve recently seen China raise interest rates, while other emerging markets like India and Brazil are trying to temper growth to avoid a hard landing. How do these inflation-fighting moves affect the long-term outlook for gold? And with the U.S. dollar still relatively weak, but gaining strength, how much does this weigh on emerging markets, especially in terms of the demand from big gold-consuming regions like India and China?

Chris Weber: To me, the prime consideration affecting gold in the long-term revolves around competitive devaluations of currencies. As long as everyone wants a cheap currency, they will cheapen them, and it will continue to take more units of currency to buy the same amount of gold or silver. And certainly, Brazil and China have made it very clear that they won’t allow their currencies to rise too much. Brazil doesn’t seem to want its real to rise at all.

Matthew Carr: What about the possibility of Brazil and China possibly growing too fast – does this make for a more promising situation for gold prices in the years ahead?

Chris Weber: I don’t know how to calculate how “fast” is “too fast” in economic growth. It’s more important to see how this growth is coming about. If it’s through true economic development and progress, gold will be under pressure to rise due to increased industrial demand. If growth is due to inflation, then gold will tend to rise due to investment demand. Either way, I’m bullish on gold in the years ahead.*

Matthew Carr: Many thanks for your time, Chris.

From a technical standpoint, gold’s volatility still remains consistent with its long-term trend. Right now, it’s lurking below its 50-day moving average, something we saw five times last year. And compared to other metals, gold’s volatility is far tamer than silver, platinum, aluminum, nickel, tin, palladium, lead, or zinc. So any concerns over gold’s recent dip need to be put into perspective.

The real issue is history. Since 2000, gold has advanced steadily – up 350%. That’s an extraordinary run. But understand that while gold remains an inflation and currency hedge, it’s now much more than that – especially as emerging markets continue their robust pace and try to curb inflation and keep their currencies from rising in value.

Good investing,

Investment U and Chris Weber

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.


About

Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.

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