Gold Losing Its Shine? 13 comments
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Gold traded lower this past week, losing $20 from the previous week's closing of $929. News flows were slightly positive for gold, with recession fears creeping in again with higher jobless claims, less than expected U.S. GDP growth, lower non-farm pay rolls increased unemployment rates; however the markets seemed to finally be thinking differently.
Funds and investors were seen moving their investments from the commodities market on receding oil prices, thereby strengthening the U.S. dollar against major currencies, evident from the dollar index, which closed higher compared to the previous three weeks, indicating an intermediate uptrend for the U.S. dollar in the coming days.
Gold has had a substantial run in the past year, rising from $600 to $1033 due to a sell off in the U.S. dollar and high oil prices, which were pushing gold as the best hedge to these adversaries.
Physical gold demand failed to accelerate and reduced power problems in South African mines is easing output threats. Oil is now seen correcting, despite the supply crisis of Nigerian attacks and geopolitical drama involving Iran, attributing to lesser demand anticipation due to the receding growth rate of China and India in the coming days, increase in output to combat very high prices and also the U.S. government trying many ways to bring down speculation in future contracts measures, such as lifting the presidential ban on offshore drilling, showing their seriousness in that direction
Despite the indicators during the week showing less growth, there is a light at the end of the tunnel visible for U.S. economy. In the past year, as the dollar eased, U.S. exports have picked up momentum, as U.S. products and services became more appealing and cheaper compared to euro zone suppliers elsewhere in the world; contrary to dollar weakness and a strengthening euro, these suppliers were losing on exports on which they now depend more in light of lesser internal consumption. This was instrumental in the increase of American export. Also contributing to consumer confidence increase and durable goods order increases were Uncle Sam’s tax rebates of $75 billion.
Going by the above factors, excepting for any geopolitical disturbances or natural calamities, the economy should revive in about six months, thereby reducing the appeal to invest in hedge investments. This is substantiated by some buying interest in the Dow Jones. Usually, stock market investing will start three month prior to the end of a recession. So now, during this last month, there appears to be good enough buying in the US stock market. The aggressive rate cuts by Ben Bernanke are also contributing here with a flush of cheap funds.
We feel that the gold run up due to dollar weakening can re-rate itself on the U.S. dollar’s gain in the coming weeks and months, to at least the $800 level, once the U.S. dollar index reaches the 77 mark, or the euro reaches 1.4850 against the U.S. dollar, the probability of which is on the higher side over the next couple of months.
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A buy in gold has been created.
In the end fiat money are ot and soon forgotten.
This is one of the most astonishingly pollyanna-ish statements I've seen in SA in quite a while. Given that we've still seen less than $500B worth of losses reported out of the financials, and estimates of the sub-prime mess and it's spillovers range from $1T - $1.5T, there are still an enormous amount of losses that have not been flushed out yet, and which could still collapse the whole shebang, Bernanke and cohorts notwithstanding. Do the failures and attendant rabidly anti-free market government takeovers and bailouts of IndyMac (costing 10% of FDIC reserves in one fell swoop) and its smaller brethren, along with Fannie and Freddie, all within the last few weeks, mean nothing to this author? Merrill's accepting 5 cents on the dollar for its CDO's? Hello? McFly?
Is anyone else having a flashback to the Wizard of Oz, with Dorothy closing her eyes tightly and desperately wishing her escape from Oz? That may work in the fantasy genre, but it's a recipe for disappointment here in real life.
For the record, and no offense to Kansans, but for the life of me I could never figure out why she chose a Kansas farm life over Oz...
We reality players know which side our bread is buttered, therefore, we will just take this opportunity to BUY gold and silver....and take POSSESSION, too! None of that buying PM "paper"...that's for those willing to give their money away to the greed mongers.
Let's see. We built an entire economy on debt. We fueled it with debt. Companies prospered and sales depend on people being able to borrow.
Today, we have less ability to obtain more debt due to lenders wising up and wishing to be paid back on mortgages, borrowers are finally maxed out and can borrow no more w/o becoming bankrupt. Our nation spends far far more than it brings in in taxes, and is now flirting with a $1 TRILLION deficit for 2009 (if you include off-budget items such as, oh, the war).
Yet we're looking at an economic upswing in 6 months, eh?
Gold and oil and commodities falling recently is simply proof that markets are made up of many people who are irrational and all this gets sorted out in the long run. Only when the lid comes off on inflation and people learn what inflation really is will gold set off on another big run off.
But as long as propagandists are out there convincing them it's really speculators, greedy oil companies, etc, they'll buy the line that inflation is not the problem.
Rocky Hue.