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Several weeks ago I had written that gold would do fine in 07, to stay in gold. At that time, gold was languishing between 620 and 600. A week ago I wrote that gold was going to retest $640. That happened and, today, Thursday, gold is now at 650 ish. Gold ignores bearish data I had several reasons for this gold bull. a major one was gold’s resistance to bearish USD and oil price swings that usually hurt gold – the USD would rise and gold often ignored it, and even rose, and oil dropped and gold would shrug that off. Even as base metals had been dropping, gold was still holding up quite well. Flight to safety in gold and USD Of course, gold would react bullishly with the ongoing tension with Iran, and the USD, while strengthening some to about 84 on the USDX in recent weeks, is going to be an ongoing issue. Then of course, China comes out with yet another public comment about spending some of their huge USD horde to buy commodities and such. All of this laid the ground work for the present gold bull – at least to this stage. Gold has even broken the recent string of declining tops in its months old prices, and now is decidedly above that level. That one fact was making me pause some about predicting an ongoing gold bull past the present price increases, first to $640 then to $650. Fund interest and de-hedging There is also some fund interest again in gold. Also, not the least significant, is some large de-hedging by Gold Fields. De-hedging last year by Barrick/Placer Dome played a role in gold’s rise last year to $730. Many investors have been waiting for gold decidedly stay above $640 to declare the short term gold bear of recent months definitively dead. In the last several attempts at $640, gold sold off quickly. I told readers that I was looking for gold to stay above $640 all this week to be sure that gold was going higher and on to perhaps $700. Also, when oil started to recover this and last week, gold used that to ratchet up further, having mostly ignored oil’s falls recently. In particular, Iran is a serious threat to the Middle East. If there is either a US or Israeli attack on them, oil will rocket and gold too. In fact, I surmise that one major reason for the USD strength recently is a flight to safety in gold and the USD- something that would explain gold’s resistance to a rising USD often. US interest rate outlook Also, on the horizon is a weakening US economy. Today, new US unemployment applications came in at 335,000, 15000 over the consensus. And US existing home sales plummeted 8.4% for the year, the biggest decline since 1989 – a definite indicator the housing bubble has not ‘soft landed’. These statistics make it likely the Fed will have to consider lowering interest rates here, and that is not going to help the USD one bit. Clearly the gold market is expecting that. The EU is talking rising interest rates, and Japan passed again raising. I have written before that I expect these economies to forego further interest rate increases – should the US lower, something that is within possibility in coming months. Given all of the above reasons, I am looking for a goodly rise in gold in the coming months. There could be a consolidation intervening, but we can kiss the low $600s goodbye anyway. Prudent Squirrel subscribers are already aware of the points in this article. They have had a two week forewarning of this present gold bullish phase. About Prudent Squirrel The Prudent Squirrel Newsletter is Chris Laird’s weekly macroeconomic gold report. It is 44 issues a year. Each week, lengthy reports of the major gold related news – economic and political – are presented. It provides an overall view of the state of the gold market, and has been quite successful anticipating changes in the gold market. The newsletter is news centric. I read over 10,000 gold related news articles a year, and of course, track gold related data as well. We are frequently right on top of major changes in the gold market focus. Subscribers benefit from the ambitious schedule – 44 issues a year, of seven to 12 pages. I believe that such a schedule is necessary to track today’s gold market. Also, subscribers get occasional email alerts of immediately developing trends should they occur. These have been running about 2-3 a month. Subscribers have told me they really like that feature, and have benefited from it. We also do not charge extra for that service. Stop by and have a look.
The Prudent Squirrel newsletter is Chris Laird’s weekly macroeconomic gold newsletter. A month or so ago, I predicted the short term gold bear market is over based on the weak USD and the continuing concern in the Mid East. That has proven to be true – holding up gold in spite of weakness in the base metals…. Stop by and have a look. CONTACT
INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
