Prieur du Plessis
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The quaint village where I am spending my Christmas break becomes quite windy on occasion, and at best is not a highly predictable event. This reminds me of the erratic behavior of gold bullion. You just never know with what action the yellow metal is going to surprise you next, making it infamously difficult to predict short-term movements.
And true to form, just as traders were bargaining on a quiet Christmas period, gold again startled with a $15 jump, taking the price well clear of the $800-level. (The rally commenced more than a day prior to the assassination of former Pakistani Prime Minister Benazir Bhutto.) Interestingly, gold has never in its history recorded a month-end price above $800, and only closed above this level on two days during its 1980 surge: $830 on January 18, 1980, and $850 on January 21, 1980. That, however, represented a blow-off with the price plunging to $737.50 a day later, and falling further to $659 by the end of January.
It would seem that gold bulls may very well have reason to toast bullion next week, saying goodbye to 2007 having achieved the $800 month-end milestone. There is, however, quite an important difference between 1980 and the present situation. In 1980 gold was in a parabolic rise, whereas since the low of $250 in 2001 gold has been rising methodically, mapping out consistently higher lows as shown below.
click to enlarge
Source: StockCharts.com
The upside breakout from the pennant consolidation pattern is a bullish technical development and looks well supported by the rising momentum (top section of graph) and MACD (bottom section of graph) indicators.
The gold price has not only strengthened in U.S. dollar terms, but has in fact been appreciating in most currencies - an indication of increased investment demand. The following graph and table (not yet reflecting the post-Christmas rally) clearly illustrate this phenomenon.
Source: Plexus Asset Management (based on data from I-Net)
|
GOLD PRICE MOVEMENTS IN VARIOUS CURRENCIES |
|||
| Gold price in various currencies |
2005 |
2006 |
2007 (YTD: Dec 24, 2007) |
| Gold in US dollar |
17.9% |
23.1% |
27.5% |
| Gold in euro |
34.9% |
10.5% |
16.9% |
| Gold in British pound |
31.3% |
8.3% |
26.4% |
| Gold in Swiss franc |
35.9% |
14.1% |
21.1% |
| Gold in yen |
35.5% |
24.4% |
22.5% |
| Gold in Aus Dollar |
24.9% |
13.9% |
16.2% |
| Gold in Can Dollar |
14.0% |
23.5% |
7.8% |
| Gold in rand |
31.9% |
37.1% |
27.3% |
| Gold in renminbi |
15.0% |
19.1% |
20.1% |
| Gold in rupee |
22.7% |
20.8% |
13.7% |
| Gold in dinar |
17.9% |
23.2% |
21.1% |
Source: Plexus Asset Management (based on data from I-Net)
The pressing question is how sustainable bullion’s uptrend is. Although the technical picture indicates a primary bull market, the fundamental situation offers both bullish and bearish arguments.
The arguments in favor of a rising gold price have been well documented and include: the possibility of ongoing pressure on the U.S. dollar, increasing global inflationary expectations, a surging oil price, minimal new mine production, and the fact that central bank sales are capped through the Central Bank Gold Agreement (CBGA II).
The bears, on the other hand, point to: record long speculator positions that have in the past been strongly correlated with gold price corrections, potentially lower fabrication demand from India (as a result of the higher price), and a slowdown in producer de-hedging as the global hedge book diminishes. Additionally, a seasonally weak period is approaching from February to April, as is illustrated by the graph below.
Over the past few months I have often conveyed my bullish stance on gold bullion. Examples of these articles include: “Gold: forwards and upwards,” (September 14, 2007) and “Smart money bets on surging gold price,” (September 4, 2007). I see no reason to change this position, from both an absolute, and safe-haven point of view. I would, however, caution that one should not chase a surging gold price in an attempt to stock up on the various gold-related instruments. Instead, bide your time and wait for the short-term corrections that occur regularly, perhaps coinciding with the advent of seasonal weakness in a few weeks’ time.
The final word goes to George Bernard Shaw who said:
The most important thing about money is to maintain its stability… You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.
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This article has 5 comments:
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Sr. Pessimist
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505 Comments
Dec 29 08:54 AMGold, gold, it's just like the buck.
It's not what you eat, and not what you fu**.
You don't eat and don't fu** then good you don't feel,
So let's not use gold for business deals.
Raw equity vouchers identifying the specific equity in exchange. Each voucher has an expiration date. These useless dollars just live on in the pockets of the rich. They don't work. They just consume. It ensures the death of any economy. I'm not buying in to crap like that.
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Sr. Pessimist
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505 Comments
Dec 29 09:08 AMStill, there's no such thing as free gold bullion. A dollar is as worthless as the government making its fiscal policy. The US Government just has no way of stacking up.
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Larry Teller
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6 Comments
Dec 29 04:01 PMwww.vestopia.com/Blogs...
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Ross
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6 Comments
Dec 30 09:13 PMRoss.
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Dale F. Doelling
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1 Comment
Jan 02 03:28 PMDale F. Doelling
Chief Market Technician
Trends In Commodities