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Real Reason Gold Jumped: “Because!”

Gold quotes lurched sharply higher yesterday, and we take it as especially bullish that the news media tripped over their own feet trying to explain why.  Reuters reported that prices surged because of “safe-haven demand due to ongoing fears about euro zone credit contagion.” How’s that for  lame analysis?  The Wall Street Journal didn’t do much better:  “Gold made a sudden, sharp move higher, a jump many attributed to  fears of Europe’s sovereign debt crisis.” Shouldn’t someone point out to these guys that the euro held its own yesterday for a rare change and that that is surely an odd way for traders to have expressed their supposed anxiety over Europe’s financial fate? Another talking head who apparently didn’t get it was Bart Melek, a global commodity strategist for some firm: “It’s a bizarre move,” Melek told the Journal. “Fundamentally,” he said, “we really have not seen many things today” that could justify such a big jump.

Lest Melek and the others lose sleep over bullion’s vexatious vault, we’ll spell it out for them in just one word:  B-E-C-A-U-S-E!  “Because why?” Melek might ask. Just because, we’d reply, leaving it at that. Sometimes explanations need be no more complicated than that, and this is one of those times.  And anyway, anyone who still wonders why gold has taken a big leap on a given day must have been living on Mars while the yellow metal’s price quintupled from $250 to $1250 over the last ten years. They are the very same geniuses who have no difficulty explaining each and every 200-point rally in the Dow:  “The strength of the economic recovery is what did it,”  they will tell you – and never mind the fact that it is the banking sector alone that has felt any real improvement.
 

Brace for Worse

We’d suggest that the pundits brace for a washout decline in stocks in the days and weeks ahead, as Europe pretends to deal with a grave financial crisis that has now come to include a run on Hungary’s debt and currency. Nor should anyone be surprised if Gold’s share of safe-haven money continues to rise, as it absolutely should if there’s a vestige of sanity left in the investment world. Over the near term, our specific target for Gold, basis the August Comex contract, is 1261.80, although a close above that number would make 1293.50 an odds-on bet.  Yesterday, we’d thought gold might remain in a lazy drift or perhaps even go lower this week, but after yesterday’s buzz-saw performance, it looks like bulls will be proceeding without trepidation. If you’re interested in a detailed daily analysis of gold but don’t subscribe, consider taking a free week’s trial to Rick’s Picks by clicking here.

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