Tuesday, May 09, 2006


Gold Tops $700; Traders Look Higher

The big news of the day is another landmark for gold. "Gold prices surged Tuesday above $700 an ounce, a level not reached since 1980, as funds bought into the market, driven by weakness in the dollar, political tension in the Middle East and overall upward momentum in the commodities markets. Gold has risen 40 percent since late November, when for the first time in two decades the most-active contract broke through $500 an ounce."

"Surpassing $700 an ounce 'is important, insofar as it reinforces the overall uptrend of the market. There are people looking for much, much higher,' said Bernard Hunter, director of precious metals a division of the Bank of Nova Scotia. Hunter said prices will likely consolidate at this level, then once again start heading higher. Some market watchers are expecting gold to breach the $1,000-an-ounce mark."

"June gold futures on the New York Mercantile Exchange rose to a peak of $702.20 an ounce Tuesday, before settling at $701.50 an ounce, up $21.60 on the day."

"If gold does continue rising into the coming weeks, it will mark the first time the yellow metal has spent significant time trading above $700. The all-time record, set in January 1980, was $875 an ounce, but it was reached in a huge day-and-a-half surge, and then gold futures fell 'back under $700 before you could blink an eye,' said Peter Grandich."

"Now, 'all the lights look green for gold. From this point forward, after the excitement, we could see a correction. But it will only be a correction. It will not be the end of this run,' Grandich said."

"The main factors contributing to funds' recent interest in buying gold futures are geopolitical worries, mining hindrances, and a falling dollar, which typically encourages investors to turn to gold, considered a safer alternative to the U.S. currency. 'Surprisingly, the one factor that's really absent from this is normal physical demand,' Hunter said."

"The euro rose as high as $1.2783 against the dollar Tuesday on a report showing increasing U.S. wholesale inventories and on the worry that the Federal Reserve will pause in raising interest rates after one more move, to 5 percent from 4.75 percent."

"Other metals also rose as well Tuesday. Platinum rose to a $1,243-an-ounce record, before settling at $1,239.30 an ounce, up $37.40 on the day. Palladium also soared to a fresh high of $395 an ounce, ending the day at $394.90 an ounce, up $19.65. Silver rose 69.5 cents to settle at $14.465 an ounce."

"High gold prices also pulled mining stocks higher Tuesday. Shares of Barrick Gold Corp., the world's largest gold producer, rose 90 cents, or 2.6 percent, to close at $34.87 on the New York Stock Exchange. Shares of rival Newmont Mining Co. climbed rose $2.20, or 4 percent, to close at $57.93."

"'We have a combination of overlaying sets of momentum here. More and more of genuine investors have become convinced that some portion of their assets should be put into the sector,' said investment strategist Sean Corrigan. 'Clearly, this is a very nervous market and we could suffer quite a serious shake out at any point,' he added."

"Some Chinese economists urged Beijing to quadruple its gold reserves to 2,500 tonnes from 600 tonnes because the country's foreign exchange reserves had become the world's largest, an official industry newspaper reported on Tuesday. 'Gold will continue to be seen as a safe bet as international tension looks set to increase again while the dollar is set to remain under pressure,' said James Moore, analyst at TheBullionDesk.com."

"Moore said the break above $700 was likely to generate fresh momentum as investors and speculators build on their bullish positions and he felt that the metal's $850 all-time high was now a realistic target."

"The market shrugged off news that gold reserves held by Eurosystem central banks fell by a net 916 mln euros in the week ended May 5 after three central banks sold bullion."

"The rise by platinum was driven by robust demand for the metal from industries such as automobiles, glass and chemicals, Wolfgang Wrzesniok-Rossbach, head of precious metals marketing at Germany's Heraeus, said. 'We believe that platinum has a more fundamental underpin than gold, silver or palladium,' said John Reade, precious metals analyst at UBS Investment Bank."

"'While there is undoubtedly investor and speculative long positions in platinum, the market remains in a fundamental deficit and should remain so for the foreseeable future,' he said in a daily report."

"Investors were betting on platinum ahead of London's Platinum Week, which starts on May 15. Johnson Matthey, the world's top distributor of the metal, will release its widely read report during the week on market fundamentals and price trends."

hey ben, has traffic to this blog increased?
'The market shrugged off news that gold reserves held by Eurosystem central banks fell by a net 916 mln euros in the week ended May 5 after three central banks sold bullion.'

Finally! Finally I hear a rumor of central bank selling and on the day gold goes back over $700 no less.

Grandich is right about how brief the gold spike was in the 80's. It was just a few hours really.

Congratulations longs. How about some predictions about corrections, new highs, etc?
I don't know. I almost never check traffic to any blog.
The mainstream media know/nothings will be out soon saying gold/metals are in a bubble and speculative. Of course the fundamentals remain the same. The dollar is headed to the ash can. The FED has painted itself into a corner, inflate or die. We will have some retractions in price along the way, but in the long run gold,silver etc... Will do what they are destined to do.
Even my dad called me up to tell me the news of $700 gold (he's not an active trader). I think that marks the start of Phase III for me.

I sold a little bit today @ $700. I'm hoping for a slight dip later this week to buy that back.

Although I tried that strategy with SU, and it didn't work out so well (had to pay a premium to re-enter the position). But I've done it with gold before: Purchased at $540, sold at $580, and rebought at $540.
so what would be some of the signs of an imminent bubble-burst and crash in metals? because the "it's different this time" mentality amongst some of the metal bugs scares the dookie out of me.

I know the fundamentals point to a dollar crash and a metals frenzy, but what would a 1980-style rush and bust look like from the front?

I guess what I'm really asking is what are the signs (other than cabbies and doormen talking abou their Krug hoard) to get out of my metals before the peak and crash?
I think the veterans of the last gold peak should speak to that.
Gold at $700???

I cannot tell you how sick to my stomach this makes me. I sold a sizable position at $560 just a couple of months ago because I do not like to play with the speculators. Oh well that's how it goes.

Props to those on here who stuck with their convictions and stayed long. Gold blowing through the sixes like it did is one of the most freakish thing I have ever seen as far as investments go.

PS - Alot of you guys are starting to sound like I did.
I think its important to consider the economic factors that led to the end of the last gold boom. Gold went up during the 70's for many reasons, but many would say because during stagflation equities were underperforming and dollars were decreasing in value. Gold stopped increasing when Paul Volker (then Fed chairman) limited the growth of the money supply and stopped the prior policy of "interest rate targeting".

Contrast that with today, where we not only have a Fed chief who believes devoutly in a policy of "interest rate targeting", and received the nickname "helicopter ben" because he proscribes wanton increases to the money supply.

But more importantly -- and here's the fact that must keep Ben Bernanke up at night: The effect of the Federal Reserve's interest rate adjustments on money supply will be MINIMAL compared to the policies of foreign central banks re: increasing or decreasing their dollar assets. In other words, the Fed is no longer in the driver's seat when it comes to controlling dollar scarcity. Foreign central banks are.

(The Wall Street Journal has a good piece on this today -- see Ben's previous blog posting today).

IMHO gold hasn't even begun to go up yet. And I mean that sincerely. We are right now, about to begin the greatest gold boom in history. The US needs cheaper dollars to pay down debts and restore the balance of trade. Foreign governments know this and are increasingly uneasy about their terrifyingly large quantities of dollar assets. They've got loose hands in this respect. Capital flight out of dollars is only beginning.

Breaking the $850 record for gold is going to be cake.
Speaking of Bernake:

While i disagree mostly with the Feds monetary policy the last few years, it's real easy to fault the guy but I for one would not want his job.

I think the real question is how much has politics affected our Gov't monetary policies.

A very good friend of mine taught economics with Bernake at Princeton and recently told me that he is one of the smartest people he has ever met. Says Bernake forgot more than he has ever known about economics and my friend now teaches economics at Stanford and I consider him the smartest guy I know.

I guess my point is these guys controlling our money supply are not stupid, they know whats going on and are trying the best of thier abilities to do the righ thing.
Signs to sell your gold:

The dollar completes its devaluation.

The Fed shuts down the printing presses and actual practices some restraint on liquidity.

Foreign CB's get rid of most of their $US reserves.

When I see all of these happen, I'll seriously consider selling. Forget about the price of gold, pay attention to the abuse of the currencies.
Check out the "Best Quotes of April 2006":


Oh, and BTW, we're barely into phase II, and I've got a lot more accumulating to do. :)
What was the boom of the late '70s like? Well, it wasn't just the frenzied run-up of January 1980. It went on for a few years in the late '70's. I was just a kid then but my dad needed as many trustworthy employees as he could find. I remember working 12 hour days and having customers tripping over each other yellign "I'm next!". I remember the receipt drawer being so full it wouldn't close. We arrived at work at 7a.m. every day, 7 days a week and people were lined up around the building. This phase lasted many months, but we were almost as busy for a few years on either side of the peak.

Right now I am at work sipping a cup of coffee posting on an internet blog. We are not anywhere near the frenzy of the market. It is coming, my business picks up a little bit every week. There are more phone calls, more people inquiring about metals, more people purchasing them. It feels like late 1978 to me.
Great stuff, Jim. Keep it coming!
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