Gold has likely seen its bottom

Gold reached its lowest level around $1180 per oz last year. Is this the end of the 2 years old gold correction? No one can know for sure in advance. Only the history can tell retrospectively. But I think more and more evidence has emerged to suggest that this is indeed likely the bottom for this gold correction.

First technically speaking, the sentiment has never been so poor for gold for a decade. Ask yourself, do you want to hear or even think about gold at the moment? I bet the majority of you, if not all, may even want to vomit when hearing the word, gold. That's the current reality about gold. No one wants to talk about it, let along putting money into it. But believe or not, this is exactly what an atmosphere looks like when a sector reaches its bottom. When no one wants to talk about something, usually there is no one left to sell as well. So the chance of going down further is minimal. When the sentiment is so poor, gold has quietly jumped by 10% this year and the gold mining stocks have advanced 30% so far. So gold has not only passed its 50-day moving average (DMA), it has just broken up through its 200 DMA. Technically this is a trend changing phenomenon.

Now fundamentally, there are quite a few factors supporting gold:

• China is quietly buying all the gold she can find. Last year she has imported 1000 ton gold. This is on top of all the gold produced in China that has been kept in China. China is now the largest gold producer in the world and she dose not allow gold to be exported. So physical demand is quite high for gold.
• On the supply side, it is becoming tighter and tighter. The current gold price is almost at the production cost level. In other words, many gold miners cannot make money at this low price. So many big mining companies simply close down their projects to avoid losing too much money. This in turn will make the gold supply less and less available while the demand will only increase. 
• After the bloodshed seen in the past 2 years for gold with its price at this low level, big money funds are now also starting to move into gold and mining stocks. This is again trend changing.

Does that mean gold will only go up in the months ahead? Not at all. It will still be very volatile with up and down price movement along the way. But I think the volatility will be confined to certain band range with the bottom not below $1180. If it declines again through $1180, then I'm wrong and another leg down for gold will follow.

I know not many of you dare to buy gold at this level, but just in case if anyone has the gut, buying DGP, the double long gold ETF, is one way to catch up with the trend. I personally like RGLD a lot, which is the best way to ride the gold uptrend. You can check it out here about some details on RGLD. Basically there is virtually no risk for RGLD to go out of business. At this very depressed level, one can simply buy and hold while enjoying its increasing dividends. Given how much it has advanced in the past two months, I won't be surprised that it may give back some of its gain in the next few weeks, but that will be a great opportunity to buy at is weakness.