By Craig Smith of Swiss America

We are at a very critical inflection point on gold. Long-term support is around $1,150, and we have seen some resistance at $1,250. That is a very tight trading range at the current price.

Looking at past runs, we see corrections of as much as 15% and then increases of 20-30%.

That is all the technical analysis.

I'm more concerned with fundamentals. With all currencies debasing and debt being a major focus of sovereign debt holders, I fully expect devaluations of all currencies, which ultimately will provide us with higher gold prices.

I have no doubt Obama is going to let the Bush tax cuts expire, which is the worst thing he could do in a major downturn, and his economic advisers fully know that. However, his ideology of "spreading the wealth" will win out over common sense. That will slow the economy, and, as a result, slow tax revenues, exploding the deficit and forcing Bernanke to resume quantitative easing.

In simpler word, Bernanke will debase the currency through quantitative easing as he cannot drop interest rates. They are already at zero. If rates were to go up, most tax revenue would be directed to just paying interest on our debt to keep our creditors (China, UAE, etc.) lending us money and not demanding payment in full.

So any gold price below $1,200 is very attractive, IF you have a long-term outlook. I fully expect to see huge volatility in both stocks and gold. But I'm convinced stocks are overvalued and gold is very attractive.

I wouldn't go crazy, but small purchases of $25K to $50K make good sense here. I have always bought gold and hoped the price dropped. I know that sounds counter-intuitive, but if you are buying gold as insurance, that is what you want to see. If the world is getting better, gold should settle down. I don't see that happening until a world awash in debt is addressed. You can't carry this amount of debt forever.

The U.S. alone has 100 trillion in long-term liability. Every asset in America is about 50 trillion. To expand the economy to accommodate that liability you have to create more money. If you don't expand the economy to match money supply, we will have hyper-inflation.

So the Fed is in a real pickle. Thus the need for individuals to own gold.

This is not to mention that if we go into double dip recession similar to 1932-1937 we will see gold increase. Gold increased 75% in 1933-34.