|

Market
Commentary
Gold: The One Investment that
cannot be ignored
Gold has hit the headlines again. So what lies ahead for every trader's favourite metal?
We see
higher inflation in the US for starters. We have suspected for some
time that the official US figures for inflation are fudged. With the
increase in easy credit through the recent rate reduction in the US it
will get harder for the Fed to contain inflation. But that is another
story.....
The market has taken the Fed rate
cut as acknowlegement of the seriousness of the subprime mortgage
crisis. The Dollar Index fell to a new 10 Year low, while gold broke
through resistance at $730 to establish a new 10 year high.
The weekly charts suggest there is even more upwards momentum to come.
While it is likely that the ride up will not be without pullbacks, the
next target is between $US750-$775 before some mandatory rest is
required.
The more
bullish commentators are predicting USD$900 an ounce before year end
and we would not be surprised if it went even higher.
Black gold is also
soaring, hitting as high as $82 a barrel last week, an ALL-TIME record high.
Think it's solely due to the hurricane season or worries about Iraq and
terrorism? Think again!
Oil prices are
rising because demand all over the world is continuing to grow … because oil
supplies are low … and because the value of the U.S. dollar is
plunging.
The oil chart looks extremely as bullish.
There's increasing support for the belief that $100-a-barrel oil will be reached by
the end of this year, if not sooner.
So what
else has been happening
with Gold?
Gold
companies have continued merging and making acquisitions left and
right. In
2006, we saw the most M&A activity in at least a decade. There
were 357 deals
valued at $24.3 billion, way more than the $16.2 billion in deals a
year
earlier.
Why the sudden activity?
For the simple reason that
mines are being
depleted faster than new reserves can be found. The number of
discoveries with
2.5 million or more ounces has declined for eight straight years,
according to
the Metals Economics Group in Halifax, Nova
Scotia.
If anything, we expect the
M&A feeding
frenzy to get more frantic during 2007. And we will be keeping a close
eye on
possible targets for our trading recommendations.
Mining production looks like
it will
continue its failure to keep up with demand if last year’s
results are anything
to go by. Despite rising gold prices, global gold production in the
nine months
ended September 2006 fell 2.2% to 1,804 metric tonnes from a year
earlier, says
London-based researcher GFMS Ltd.
The U.S. dollar has fallen
further recently
helping gold prices rise.
In 2006, the once mighty
greenback fell
8.1% against a basket of six currencies such as the euro, the yen and
the
Aussie dollar. That was its fourth annual decline in just five years.
The
dollar has enjoyed a short-term bounce since November 2006, but the
larger
downtrend has recently reasserted itself.
The
money printers
Without a gold
standard, central bankers are free to print money and credit to inflate
their
economies, avoid recessions and to pay off governmental debts. There’s not a
central bank or politician in the
world that will sacrifice growth in the name of tighter money. Central
bankers
are systematically devaluing currencies (with the U.S. dollar leading
the way
down), inflating their economies and pumping up money supplies.
Ironically, these central
bankers have
continued printing money at the worst possible time:
- When global demand for goods
and services is already at all time highs;
- When the world’s
most essential natural resource, oil is already facing severe supply
limits;
- When the U.S. dollar has
already lost a great deal if its purchasing power;
- And when the world is already
dealing with massive issues like terrorism
Always keep in mind: While
central bankers
and politicians can effectively create paper money at will,
they
cannot control the supply of gold in the
world.
And there isn’t much
of it to go around: ALL
the gold ever mined in the history
of the world (about 151,000 metric tonnes) can fit into a 62.3-foot
cube.
All the ingredients are in
place. Record
demand for gold continues. Meanwhile, available supplies are dwindling,
as are
new discoveries. On top of that, central bankers around the world
continue to
print money freely, depreciating their paper currencies in the process.
Add it all up, and you can see
why the
bullish trend for gold should now continue. Since 1800, the industry's
boom and
bust cycles have averaged about 10 years. However, the last downward
trend
lasted 14 years (from 1986-2000). So in our view we think
we’re only about
halfway through the current upward cycle.
Our target for gold is a
minimum $730 for
2007 and we could easily achieve that within the next few months.
That’s about
a $70 move from current prices.
The narrow consolidation over the
last few days is
likely to resolve in a downward direction, which would signal a test of
support
at $630. The primary trend remains up however. In the long term, a rise
above
$690 would signal a test of the upper trend channel and a mover to
$730; while
a fall below support at $630 would signal that the trend has reversed.
And we would not be surprised
to see a
spike to $800 per ounce if geopolitical forces boil over.
Current
bid, $ change, low, high
![[Most Recent Quotes from www.kitco.com]](http://kitconet.com/images/quotes_4b2.gif)
24
hour GOLD Spot Price
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
FACT:
The most profitable skill you can
ever master is the skill of trading......
|