NEW YORK (Kitco News) -- Gold has been doing exactly what it should be doing, says Axel Merk of San Francisco-based Merk Investments.
The recent choppy, sideways trading and Thursday's gold rally suggest the market has put in at least a near-term low. Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,130.00.
Merk explained, 'I like gold because I don't think we can have positive real interest rates - which ultimately is a competitor to gold.' Merk also added that he is waiting for the U.S. Fed to 'acknowledge' that it cannot pursue a hiking cycle, at which point, 'gold will rise in earnest again.'
Despite a rally in equity markets Friday, gold has managed to hold its ground around the key $1,100 area, with Comex February gold futures last trading at 1,098.30 an ounce -- relatively unchanged on the day. In the first month of trading, gold has been one of the best performing commodities.
Merk said he encourages investors to stick to a plan when the markets are in turmoil, but only if investors have been on a plan all along. 'Let's assume for a moment that an investor has done his or her homework, possibly even sat down with a financial planner or given his or her money to someone to manage. We are all good then, right? I'm afraid that may not yet cut it,' the portfolio manager said.
'Each time I hear someone suggest investors should 'stay the course' as markets tank, I fear such well-intentioned advice fails to adequately capture the predicament investors are in. Worse, the 'stay the course' mantra may set many investors up for failure,' he added.
'You should have stayed the course during the good times, meaning you should have stayed with your plan to rebalance when times are good -- take chips off the table when things are good.'