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GOLD
REDUX
by Christopher Laird
PrudentSquirrel.com
October 6, 2006
There are a lot of
things happening in gold and in the macro economic world.
Among
them are:
-
Quite
possible Fed interest rate hike. Two Fed governors (non voting) have
said this week that inflation remains a US concern. US economic
statistics are quite mixed, but there are signs the US economy is
still strong in sectors non housing related. If the Fed surprises
and raises, look out for gold, and worse will be a derivatives
surprise later. Derivatives don’t like surprises at ALL. Everyone
is betting on paused US interest rates. Non farm employment is up
51000.
-
Continuing
weakness in the commodities complex, not the least of which is
gold’s recent price drops running at roughly 70 plus USD in the
last weeks.
-
The
Dow meets a new record and the financial press is all gaga about it.
I think it is very overblown considering the indications of weakness
in the macro economy judging by things like the CRB and Transports
which are indicators of economic slowing. Supposedly the lower oil
prices are encouraging consumers to go on buying sprees, but that
does not impress me at all because they are going to get exhausted
soon anyway, the dropping oil prices are more indicative of a
weakening macro environment, any bonus to the world economy will be
overcome if there is a serious recession. And so on. There is a lot
more to say about this.
-
Rumors
that OPEC will drop production by a million barrels a day, then
counter rumors that Saudi doesn’t agree to that at this point.
OPEC public statements they won’t allow oil to drop below 60, oil
rises over 60, then later come to find out that there is not a
consensus in OPEC to do anything at this particular point, but
surprises are always around the corner aren’t they??? So oil again
drops below 60.
-
Gold’s
mini rallies all have no legs, there is selling into any rallies.
-
Supposedly,
first the Central banks sold all their gold, or were going to sell
it all, then notice that they didn’t sell it all, being short
about 100 tons, then notice again that they indeed did sell all 500
tons for this past year…..conflicting signals, and then that the
CB forward sold their gold in a surreptitious manner….kind of like
the whole tenor of the gold market now.
-
There
are indications that the West is not finished with their round of
interest rate hikes. If they resume or do one or two more rounds
that just adds more bearish force on gold in the short term.
I
wrote a forecast a couple of weeks ago that gold was going to between
500 and 550 by December, even after I had just seen a forecast by GFMS
that gold was going well over 700 by December. That made me nervous, but
it does appear that I am going to be right, possibly quite sooner than I
thought.
No
bottom as of yet in gold’s recent drops
In
fact, we have not seen a bottom in gold’s recent ‘correction’
because this is not a gold correction, it is a fundamental change in
gold’s short and mid term prospects- gold is reflecting a deflationary
macro economic expectation that is developing, but has not reached a
stage of consensus either in the economic community or in the gold
market for that matter. But such a consensus is definitely developing.
Speculation
unwinding is overcoming all gold rallies, and is causing much of the
latest carnage. Again, gold still has lots of speculative froth, as does
the CRB. Much of this is going to spill off in the coming 6 months, but
what has amazed me is the speed of the change and pull back by
speculators. Their selling has proceeded faster than anyone expected,
and it is overwhelming the normal seasonal demand for gold now. In fact,
there are articles out indicating that jewelers are even waiting
further. They still have a month or so they can wait till they must buy
for their respective gold seasons.
In
any case no one yet sees a bottom. The last jeweler buying point was
around 590 - 600 bucks, but now gold has dropped well below that and now
jewelers are looking for a new buy point, and I will hazard a guess that
is in the 550’s. But that won’t necessarily stop gold’s drops if
speculators are still unloading all that paper gold so we will see.
© 2006
Christopher Laird
Prudent Squirrel
Editorial
Archive
There
is a lot more to all this action. I will have a special report for
subscribers about all this, and much more, in either this or next
week’s Prudent Squirrel Newsletter. Stop by and have a look.
CONTACT
INFORMATION
Chris Laird
PrudentSquirrel.com
Los Angeles, CA USA
Email l Website The
opinions of FSU contributors do not necessarily reflect those of
Financial Sense.
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