Last week's gold commentary

Below are excerpts from last week's commentary in the Precious Metals section at the subscription site. After a long weekend involving some major changes to the model portfolio, little motivation can be found at the moment to write for the blog, however, that will change soon enough.

It looks like we are now a few dollars clear of the $900 level that, just six months ago, would have seemed pretty preposterous - what you see below was written two days ago on Saturday.

There were new all-time highs for gold last week as the heavily traded February futures contract saw prices go as high as $900.10 before ending the week slightly lower. The spot price reached a new inter-day high of $898. The 15-month long price weakness in the yellow metal, after making highs near $725 in the spring of 2006, now seem like an ancient memory as more and more analysts talk about $1,000 gold, at which point the nascent gold fever may really begin to catch on with retail investors.

The usual reasons are being offered for the recent strength in the gold price and, while some are starting to talk about a "gold bubble" and Dennis Gartman announced that he was selling half his gold position, I don't think there is any reason to even think about selling anything unless you are a much better trader than I have ever been. Mr. Gartman's reasoning is that there is likely to be a major correction down toward $800 before prices go appreciably higher and he remains very bullish in the longer-term.

It's hard to argue with that thinking, however, I wouldn't count on a correction.

As mentioned in this section late last year (see Volume II, Issue 49) and as shown in the chart below, there is a precedent for the sort of movement that we are now seeing where a big price move follows another big price move after a period of a few months of consolidation.

This is one of the reasons why I continue to advocate taking initial positions at any time and then either averaging in over time or buying on weakness - you don't want to be completely left behind, but at the same time you don't want to be stuck with a losing position for 15 months (as was the case between May of 2006 and August of 2007) because many investors simply can't deal with holding onto a losing position for that period of time, opting instead to exit positions at a loss.

Silver too has posted strong gains in recent weeks, rising 10 percent as compared to just six percent for gold. As discussed previously (see Volume II, Issue 52), in conjunction with the sale of equity positions in the model portfolio this week ...

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