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Gold Prices: How to Climb the "Golden Staircase'

When U.K. subscriber John M. wrote in this week, he got right to the point.

Asked John: "What's happening to gold prices? Why are they dropping?"

For an answer, I speed-dialed Real Asset Returns Editor Peter Krauth - our resident expert on mining and precious metals.

Peter is based in Canada, which keeps him close to the natural-resource companies that proliferate north of the border. He gave me a detailed and insightful answer to John M.'s question.

And he recommended three ways to profit - including an ETF he says is perfect for first-time gold investors.

To explain what's happened with the "yellow metal" - and to project where gold prices will go next - Peter invented a pricing theory that he christened the "Golden Staircase."

"The bottom line, Bill, is that the price of gold has simply entered a consolidation phase - much like it has done numerous times since it entered this secular bull market back in 2001," he told me.

Gold futures were at $1,662.40 an ounce yesterday - well off the yellow metal's high. Here's why.

"If you think back, when gold hit its all-time high of $1,900 last August, we were in the midst of wild speculation that the U.S. government wouldn't resolve its debt-ceiling crisis," Peter explained. "A deal in Congress was reached in time, but Standard & Poor's went on to downgrade the nation's credit rating for the first time in history. Since then, there's been considerable apathy towards gold by the general investing public, pushing its price down about 13%. What's more, government-calculated inflation looks benign, taking away from gold's luster."

And here's where it gets interesting.

Join the conversation. Click here to jump to comments…

About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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  1. Ron | May 2, 2012

    Dear Mr Pantalon,

    You are probably right about the reason for the rise in gold prices… (inflation)

    The reason for the drop …. you call "Consolidation"
    I call it the Smart Money is getting out because of a fear of a Republican sweep in November…
    Then of course, there was that little thing called Tax Time where some had to do some selling
    to cover their margins or shorts..

    Sure there may be another rally in a few months, but it will be those who took their profits
    taking another quick stab at the markets after they slowly drive the prices down.
    Investors such as George Soros may be taking profits because he believes that the "Hope and Change" has run it's course..

    I suspect that Oil has also been dropping because of pressure from the White House to stop
    trying to assist in the defeat of Obama…
    When Oil prices drop, so does Gold it seems…
    It makes sense, since when Gold Prices rise, so does Oil.
    When an Airline decides to buy an Oil Refiner… to protect themselves from being hosed…
    what does that bode for other Speculators?
    How many more airlines will do the same thing if it suits their bottom line?

    There seems to be far less talk about Gold prices since the law was changed to prevent Washington
    Insiders in Congress and the Senate from profiting from what they plan to do to the country…

    Apple Stock Prices also took a nosedive.. a couple of weeks ago… during a time of very low trading volumes. Could that also be due to some profit taking in advance of the legislation banning Insider Trading by elected officials?
    A few thousand shares can make a few Million $ for those who decide to exit.

    Am I being a pessimist?

    Ron in Toronto

  2. fallingman | May 2, 2012

    Well done for recommending PHYS vs. GLD.

    I'd rather have Eric Sprott in my corner than the thieving manipulators at HSBC conspiring against me.

  3. Gold Spot Price | May 3, 2012

    Yes, Gold Prices are down lately.

  4. Tom Hegarty | May 3, 2012

    That's all very well but there's another reason too.
    If gold becomes ever more popular and begins to replace the almighty dollar as a more stable means of international monetary exchange, all hell will break loose world wide as the dollar tumbles and holders like China try and dump it as fast as they can.
    Information on other sites like this one, say that the US is dumping huge amounts of gold in off peak areas around the world to keep the price low and the dollar in place as THE international currency. If that fails, god help us !
    The cracks are there, China is opening up it's own Bullion Exchange so the Chinese people can start saving it, some oil exchanges are being done with gold rather than the dollar.
    Germany wants it's gold back from the US, in case the Euro fails and they have to start up the Deutch Mark again. Unfortunately the US won't return it…..unless they reveal names and addresses of all the secret bank accounts held across the land. Make of that what you like !

  5. Jan Hart | June 22, 2012

    I joined the $5 e-mail for advice. I haven't received any for awhile. I still want the e-mails. Please check and see what happened.
    Thanks so much for the advice on PCYC. It is a killer.

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