Gold Reaches 18-Month High; All-Time Highs in Sight

The chorus calling for a top in gold continues to grow, but the metal isn’t listening. Over the weekend, a leading European analyst warned gold investors to liquidate positions, arguing that the market had reached a "frenzy."

He must be looking at a different chart than me. The December 09 Gold Futures contract traded on the Nymex doesn’t show a "frenzy." Even the most jaded eye could not find a parabolic blowoff move. Instead, the gold futures chart shows a series of 3-6 day consolidation patterns that were all resolved to the upside. Although a top can occur anywhere, that kind of stair-step movement does not generally signal a reversal.

This morning, spot gold reached an 18-month high, flirting with the $1020 level. That puts spot gold within 2% of all-time highs. Do you think the top-callers will sing a different song if gold can pierce that level?

Arguments surrounding the Commitment of Traders reports are equally flawed. Sure, the latest report shows a high level of speculative longs in the metal. But those willing to paint gold’s moves as speculative froth ignore the fact that the largest gold miners, like Barrick Gold (ABX), are cutting forward sale hedges. They are not selling forward, as they would do if they believed lower prices were coming. Speculators are in line with the true "commercials" here.

Don Dion summarized the situation best on Realmoney (sub may be required):

Many investors consider gold to be a "barbarous relic," but higher prices may change perceptions. At some price level — I do not know where — fear of not owning gold will replace the scorn for the metal.

Whether we like it or not, gold is back, and any investment thesis that does not include it is incomplete.

Rubicon Minerals (Amex:RBY) update:

Rubicon Minerals has outpaced most gold shares in the past week, rising even as markets fell Friday. The move appears to be driven by news of positive drill results at its Red Lake development.

DISCLOSURE: Long gold futs, silver futs, RBY, many other junior and mid-tier gold and silver mining stocks.

Comments

[justin_3d:]

Good, gold is back, and where does that leaves the dollar?
Well a continue decline, as china looses trust on the dollar, buys gold, and wants to expand their currency!

Sep 16 06:45 PM

[Clint007:]

"... the market had reached a "frenzy." Ha!, Ha!, Ha! The writer must be a kid, he is so young, he don't know what it was in 1980.

When there will be in some days movement of $50. up to $100. on the Gold price, that will be a "frenzy"

Sep 17 08:41 AM