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GOLD THOUGHTS:
Gold
is the one universal money, even more so than the dollar ever was. Massive
trade deficit of United States is spewing out of vast quantities of green
paper onto the world's markets. That action can only cause the global
purchasing power of U.S. dollar to further depreciate over time. Investors
around continue to swap those green pieces of paper for Gold. They have no
choice. Supply of green dollars is growing faster than the global pile of
shiny Gold. In that situation the only possibility is for the price of
Gold to rise in dollar terms.
Last
Friday, as is often the case, New York was able to push the price of Gold
down sharply. With investors around the world already home for the weekend
such is not an unusual event. Global investors returned on Monday and
began to correct Friday's action. Gold, in dollars, returned to above
$650. For that reason the charts continue to paint a lovely picture.
Nothing but blue sky above current prices. US$650 is slowly becoming a
floor.
Lateral
price action is slowly dissipating the over bought condition that had
existed. Such resting builds the fuel for the next rally. Above Gold's
current price is nothing but sunshine, not clouds of over head resistance
to retard its advance. Charts on Gold in other national monies also add to
the encouraging picture. Euro denominated Gold is holding above €500, an
important area of resistance. Movement above that level is an indication
of strength of global demand for Gold. Canadian $Gold is just shy of a
cycle high, encouraging investors there to move into Gold.
The
G-7 meeting may be interesting. Many central banks acknowledge they own
too many dollars, but market analysts will continue to dismiss this
serious situation. Bankers will say, “I won't sell if you won't sell.”
Reply, “Trust me, I won't sell.” A cartel of trusting soles these
central bankers will claim to be. At the same time China will be bashed
for not revaluing upward the renminbi, while the Japanese will get a pass
for their weak yen. The G-7 will continue a policy of benign neglect
toward the dollar's situation. Inevitably, the massive currency mismatch
being created by the carry trade will force devaluation of the dollar, and
push Gold higher. Time and governments work in Gold's favor.
Historically,
however, putting Gold into portfolios was made difficult by the need to
use the physical commodity. With the creation of Gold ETFs that difficulty
has been removed. A good idea would be research the many precious metals
related ETFs. GDX, the Gold stock ETF on the Amex, may be of interest to
some.
© 2007 Ned W. Schmidt
Editorial
Archives
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive a trial subscription send a note to
Ned.
Please
remember that no method is perfect nor is the one running the model.
All estimated returns are for the model portfolio and do not reflect those
earned on actual portfolios.
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