Can Gold Continue to Rally?

I have been bullish on gold for more than four years, and have written scores of articles on this view over the past 2 1/2 years of blogging. Today, reluctantly, I am selling the last of my gold stocks. It seems that something has changed.

The fed cut 125 basis points in 9 days, and the market expects another 25-50 basis point cut in March. Oil and ag commodities remain elevated, and inflation reports remain well above Bernanke’s targeted levels. So gold should be exploding, right?

The problem is that its not. Gold keeps nudging new highs, but it lacks the strength one would expect under these circumstances.

Spot gold, as of yesterday’s close, only moved a few percentage points off the fed cuts [note: gold did rise about $9-10 dollars overnight, but has given up most of that gain as of the writing. I will post an updated chart over the weekend]. Yes, it is at fresh highs, but momentum appears to be fading.

At the same time, despite all of the talk of an “American peso,” the U.S. dollar continues to trade above its 2007 low. That’s right, a 125 (and potentially 175) basis point reduction in rates was not enough to push the dollar to new lows. Unless and until a new low is notched, we must take that as a sign of dollar strength, no matter what the headlines say.

This is not a long-term call. Rather, it is a recognition that the market may have shifted, and that as a trader I must step back to assess that shift. If gold shows a little mojo, I will restore my positions. But for now, they are closed and I took a small fade in silver futures (a trade I will cut ruthlessly if it goes against me).

DISCLOSURE: No positions in gold. Short silver futures (ZIH08).

Comments

[jt]

Well...there goes another victim of market manipulation. If you happened to watch the trading and how and when gold and silver "dropped" you'll see that they were taken down in a powerful selloff/shortoff @ almost precisely 10AM...together with all their equities. That is NOT a normal market action, esp in the face of all the gold positive news absolutely inundating the market. And look at what happened to platinum at the same time...NOTHING!!...or copper...NOTHING!! This was a concerted effort by the Cabal...the PPT and TPTB...to try as they have been doing for years to blind the eyes of the American public from the fraud that is the "dollar" and to keep them from taking their wealth out of paper and putting it into real money--gold and silver. And you can bet your bootie they have all the TA experts they need to know where to tip over the dominoes to get the TA programs to flash SELL!! And they know there are enough sheep just following the one in front that they have been able to be successful. BUT...they cannot print gold and silver...and investment demand continues to rise while production of gold and silver drops, esp now with the problems in SA. And that's just a thumbnail.

[ussmls7]

Collecters coins have moved up, way up, you have all coins costing more to get, the ASE has increased in sales, just not only bullion coins, but graded ASE's have got a good bunp up in prices. High grade gold coins & the high grade old Silver coins from the 1800's to any silver coins minted in the 1870's S,CC,O are in high demand, the lincoln cent, walking half, mercury dime, have made big moves up.
The cartel has spun its web, but 2 females can't own the same catch, This looks to be a hard week on the bullion market, but it will turn soon.

[Pangaea]

Perhaps the dollar has not plummeted because the market is already anticipating reciprocal cuts by the ECB and other major central banks, as evidence mounts of a US --> global recession ...

In which case, would gold not evolve into a case against all fiat currencies rather than just the USD?

[EE]

Agree with the above plus I think silver will perform better than gold when folks learn that silver is rare,needed in industry which has used up almost all inventory with little to be recovered,while gold is used mainly in teeth and jewelry, and all mined gold mostly still exists. If just a few gold bugs switch from the trillions invested in gold to the billion silver market.....well... the gold/silver ratio is set for currently unthinkable change.

[robert99]

Pangaea hit the nail on the head - Up until six months ago, most central banks were concerned with inflation. Now that housing has proven to be anything but "contained," major central banks worldwide will be collectively lowering rates in a concerted effort to give the FED room to maneuver and save the global economy from tumbling down along with the US housing market. Of course, rate cuts all around is bullish for gold. Silver is good too. I am holding.