The bull market in gold remains alive and well. Gold had become overextended on the upside. Its recent high up near the $730 an ounce mark could only be sustained if some kind of surprise event came along and impacted the markets. That did not happen and short sellers and other bears sharpened their knives and got to work.

The entire way down from $730.00 an ounce to the low near $545.00, the sellers believed that they were in control and helping to kill off the multi year bull market. (Continued)

My two favorite gold sector stocks are-Goldcorp (GG) and Royal Gold (RGLD). Buying on weakness during a bull market is a great way to make money. The recent drop in gold was a gift buying opportunity. There is still so much skepticism out there regarding gold these days that the gold stocks have not bounced back quite as forcefully as gold itself. That means the gold stocks are still relatively cheap. Therefore, on just a technical basis – we know that gold is still in good shape.

As for the fundamentals, they are lined up behind gold. Higher domestic interest rates are not always a recipe for a stronger domestic currency. When rate hikes are driven by inflation – the purchasing power of the currency is undermined. When all of the other fiscal problems facing the U.S. are added in – it is no wonder that the dollar bulls have repeatedly FAILED to stop the bear market in the dollar. A lower dollar is going to lead to a new high in gold.

I expect gold to make a new run above the $700.00 an ounce level during the next three to seven months.