If Your Shoeshiner Starts Talking About Gold...

Originally published on FXStreet.com, August 26, 2011.

One of the many crucial questions these days on the news and in every investor's mind is: “Where is the Gold going?” We've asked Ed Ponsi, president of FXEducator.com and managing director of Barchetta Capital Managment, and we listened to the Power Trading Radio with Merlin Rothfeld at the Online Trading Academy yesterday. We give you here a summary of their ideas and a few quotes of what they have to say on this hot topic.

Rothfeld uses an adage to illustrate his feeling about the Gold fixation: “There is an old phrase that says: 'When your shoeshiner is giving you stocks advice, it's time to get out of the market.' We all have somebody talking about Gold right now. That tells me that things are peaking out.” He continues his analysis and says: “A lot of traders who are holding gold right now have to sell it in order to make margin calls, because they don't have the money right now. Nobody's really flowing with cash.”

Ed Ponsi would certainly agree with this point of view and adds: “To see what happens next to gold, look to the stock market. There are many traders holding on to losing positions right now. If the stock markets falls hard, these traders will be forced to further liquidate positions in gold.”

So where is the Gold heading to? Down?

Merlin Rothfeld answers in two parts: “Do I think Gold is still gonna go up over time? Yes, I do! Do I think it's at its bottom? Absolutely not.” So Gold could see its price lower, at least in the short-term.

When asked, Merlin Rothfeld gives a number : “I would say that you will probably see gold hit the 1550 mark before we really start to see it debase and then start to see it rally up... because you have a lot of people who are now getting forced out [...] I do think you will see Gold hit 2000, but not right now. It's going to take a while to get there.”

Many say that Gold is now on a bubble. Is that so?

“Bubbles are never evident except after the fact; gold certainly has demonstrated bubble-like qualities but how high is high?” questions Ed Ponsi. “Many called the Nasdaq a bubble in 1998 and then missed out on 1999, the Nasdaq'a best year ever. And they were right, it was a bubble - but no telling how high a bubble can go before it pops.”

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