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The big news this week is the sudden pullback for gold prices and gold shares. But while the masses scratch their heads in bewilderment, smarter investors know that it had to happen at some point. Nothing goes up in a straight line without pulling back and this correction actually provides welcome respite.
As for us, we entered the gold market long ago and our positions remain solidly profitable. That's the benefit of using pro strategies to build wealth while mitigating risk and providing a valuable downside cushion.
For example, our strangle trade on Yamana Gold Inc. (NYSE: AUY) finally has a chance of making us money on the short side, as Yamana's recent decline has led to a rise for our put options. This is good, as this is actually the more difficult side of the trade.
In a Money Morning column last December, I predicted that "commodities may be due for a recovery in 2009." It's always nice to be right, but I have to say the move in some commodities has surprised me. Just look at the performance figures for the 12-month period that ended in mid-November.
When it comes to commodities, most of 2010 will be a reasonably close repeat of 2009. You may think that sounds dull - until you look at the accompanying chart (see chart below) and realize just how much more there is to go.
Although the rally started at an admittedly low point in January, by mid-November it was very clear that commodities were once again in a major bull market. A few commodities have been left out - coal, natural gas and many foodstuffs have experienced lackluster performance - but many of the others (such as the metals, in particular) have had an exceptional year.
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Gold Stretches Record Run; GM CEO Henderson Out; Philly Fed Calls For Interest Rate Hike; U.S. Auto Sales Edge Up in November; Chinese Manufacturing Continues to Expand; U.S. ISM Index Shows Slower Growth; Late Auto Payments in the U.S. Rise; The Clock is Ticking for Saab; Staples' Profit, Revenue Beat the Street
According to the way I calculate momentum, gold has just barely entered the gravity-free zone – where it has the potential to start advancing a lot, with much more fluidity.
And that translates into much higher prices.
<br And the records are going to keep on coming.
With the U.S. dollar in a freefall and global gold demand rising, analysts say the precious metal will likely continue its bullish trend through at least the first half of 2010. It could rise as high as $2,000 an ounce, which would represent a 73% gain from current record levels.
Millions of investors who bought gold in the last 12 months are undoubtedly very happy at the moment - considering that the yellow metal has risen 60% since last November to a recent close of $1,138.60 an ounce on Monday.
But chances are good that many won't be smiling when they discover just what the taxman has planned for their gains.
Unbeknownst to most investors, gold is considered a collectible not a capital asset. In plain English, this means that despite the fact that many people believe they are investing in gold, the Internal Revenue Service (IRS) believes that they are collecting it.