Wednesday, November 30, 2005


Traders Hear Golds' 'Early Warning'

The Hartford Courant explores golds recent moves and the metals future. "There was a time, before national banks and paper currency, that gold, not cash, was king. As it spiked over $500 per ounce Tuesday, the first time it crossed that threshold since 1987, the regal metal that had been relegated to a relic for decades once again laid claim to its throne."

"'The price of gold is an early warning of a lot of other things,' said David Ranson. 'It's a much more important signal than the vast majority of economists give it credit for.'"

"Along with other precious metals such as silver and platinum, gold has historically served as a reliable gauge of what the future holds for key economic measures such as inflation, interest rates and unemployment. When gold goes north, it turns out, the markets turn south."

"'The more rapidly the dollar price of gold rises, the poorer performance the equity market turns in. It's a very strong relationship historically,' said Ranson, who specializes in commodities. 'It's really irrefutable.'"

"Since the price of gold is measured in U.S. dollars, any change in the metal's price is as much a measure of investors' confidence in the dollar as it is a barometer of investors' outlook on gold, itself. And with the prices of other precious metals rising along with gold, analysts said, it's much more likely that worries about inflation, rather than demand, are driving investors."

"'People are always saying it's the Indians buying more gold, but come on. Is that a new phenomenon? There's no reason to hold gold, which pays no interest, unless you're losing confidence in currencies,' said (economist) Michael T. Darda. 'And if there's a loss of confidence, then the purchasing power of money falls.'"

"Unlike other commodities, which are produced for consumption, gold is produced mainly for accumulation, even when it's used as jewelry. Because it's not an input in industrial production, gold's relative price does not fluctuate with the business cycle."

"'The currency, not gold, itself, is variable,' Ranson wrote in a recent note to investors. 'Thus for purposes of anticipating inflation one year in the future, there is no significant information in the price of oil that is not already captured by the price of gold.'"

"But analysts warn that betting on a further rise in gold prices is tantamount to betting against the Federal Reserve, which has committed to fighting inflation by raising interest rates, at which point the price of precious metals could retreat."

Money seems to be flowing out of the Gold ETFs the past couple of days. As Gold is usually fairly volatile, I suspect we may see a short-term pullback to the $465-480/oz. level.
I'm selling my Gold Fund tomorrow. However, I remain bullish on Gold longer-term, and will probably buy again on the dip.
Interesting chart...

I'm waiting for the correction, too, precisely to "buy again on the dip". However, Daily Reckoning keeps moving up their price target because Gold refuses to come down. Don't know if I'd be doing any selling, just in case!
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