Since peaking above $1000/ounce in early March, gold prices have been in a corrective mode, consolidating the huge gains that have occurred since last summer, when the credit crisis engulfed the financial markets, the Fed began its aggressive easing campaign, and the U.S. dollar commenced another down leg. We reject the notion that gold has been in a “bubble” and a major multi-year peak has been established in gold prices. In any further correction that occurs, we expect gold to find good support in the $800 - $840 range. If gold does decline into the low $800s, we think that would be an attractive place to add to longer-term core positions. As the principal monetary commodity, gold should benefit from the efforts from the Federal Reserve and the federal government to inflate away the adverse consequences of the popped credit and real estate bubbles. Gold prices will also continue to be supported by the inflationary policies of a number of overseas governments that maintain artificial pegs to the U.S. dollar, and therefore sponsor inflation in their own economies.
