Tuesday, February 21, 2006


Gold Moves Up On Oil 'Crisis'

Dow Jones Newswire has the days metals info. "The precious-metals complex posted gains in New York Tuesday as traders returned from a three-day holiday weekend, lifted by speculative buying on the back of a rise in energy prices, traders and analysts said. April gold settled up $2 to $556.60 an ounce, while March silver added 12.5 cents to $9.545."

"'Some of that was in tandem with the energy complex being higher on the back
of the violence in Nigeria,' said Dave Meger. Militant attacks in Nigeria have led to a 19% reduction in the country's oil output the last two days, and this is showing little signs of abating, with energy analysts calling this the worst crisis there in three years. As gold was closing, March crude oil was leaving an upside gap on an open-outcry chart and was up $1.07 a barrel to $60.95."

"March silver closed just 3 cents below its $9.575 peak, which was its most muscular level since Feb. 10. April gold peaked at $559.50, also its strongest level since Feb. 10, although it then backed down nearly $3. Meger put nearby support in March silver at $9.48 and resistance around $9.60. He put support in April gold at $549 and resistance around $562 to $563."

"April platinum had an especially strong day, surging $23.50 to $1,034.50 an ounce. On a chart for open-outcry trading, the contract left a chart gap between the high of $1,019 on Friday, prior to a three-day weekend in the U.S., and the low so far Tuesday of $1,022."

"Peter Mallin-Jones, a London-based metals analyst for Goldman Sachs Group, said Tuesday he is forecasting bullion prices will hit an average of $550 an ounce this year and $575 an ounce in 2007, up from their previous forecasts of $430 and $400, respectively. 'Gold investment demand increased 114% (to 610 tonnes) in 2005 and recent trading and exchange reports suggest strong trends continuing in 2006 due to a combination of abundant global liquidity, concerns over all major currencies, U.S. current account deficit and U.S. housing market,' he said."

A Kitco analyst is more cautious. "Now that we’ve had a correction in gold, will the metal’s rally resume? My own view is that the current bounce should be viewed with suspicion. The reasons: the US economy, as anticipated, is stronger than expected. That means the Fed will keep hiking interest rates, which makes holding bullion more expensive."

"I expect the yellow metal to stay on the defensive and make a low around May, after which its long term advance will continue. What does that mean for investors? Maintain your core holdings in quality gold mining shares, but wait with initiating new trading positions."

"The dollar will continue to trade on the strong side, but some analysts are starting to focus on the latter part of this year. I’m among them. I believe the greenback will enter a period of profound weakness in the second half of the year, when the Fed’s rate tightening cycle is ends. Likely shelter against a severe dollar decline: the Chinese Yuan, the Japanese Yen, the commodity currencies and gold. In chronically volatile currency markets, the challenge will be to initiate such positions at the right time."

...the US economy, as anticipated, is stronger than expected

Maybe by some measures. It seems to me that the US economy is a freight train off the tracks, smashing ahead through the fields with its sheer weight and velocity from the credit bubble. Or perhaps more accurately it's a perp on PCP, still flailing about, though mortally wounded. Okay, no more metaphors tonight.

But with foreclosures soaring 45%, record low personal savings, record high trade and budget deficits, I would hardly describe this economy as "strong". I would describe it more as "fundamentally unsound and unsustainable".

High short-term interest rates are the only factor propping up the USD. Just wait till Bernanke realizes later that he's overshot, we have a nasty recession on our hands, and foreign investors are dumping USD assets.
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