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Wednesday, March 4, 2009

Where are Gold prices going

Tuesday it was nice to see the market didn't plunge another 300+ DOW points. It gives some hope that maybe the market isn't entering a cascading fall. I'll put on some light optimism if the DOW can close above 7,400, within reach of 7552, the old support level. Or S&P above 752.

So what is going on with gold? Well, frankly, I'm a little concerned over Gold. As I previously blogged, I sold much of my gold miner stake, waiting for a pullback. The market collapsed to new lows recently and Gold did NOT hit new highs. The USD did gain strength again. Gold not advancing indicates either the demand (fear) has weakened, the USD is finally taking a chunk out of Gold valuations, or there is market interference afoot.

So lets take a little closer look at gold. Who the heck needs gold? Jewelers and industrial use. In a recession both should be down. Who else? Speculators and "sky is falling" types. (myself excluded). Who doesn't want gold to appreciate rapidly?
Everyone BUT speculators and gold mining companies. Why?
For jewelers/industrial use cheaper resources = better profits.
For Governments, gold is somewhat the "other" currency. If people keep their money in cash, stocks, or bonds, people are participating in the world economy. Buying shiny rocks has significantly less upside to the economy.

Sound a bit deep end? Well, the International Monetary Fund once again threatened (shaky news source here) selling 400 Tonnes of gold from the third largest stash of gold in the world. But a quick Google search quickly finds out this is old-hat, back to May 2007 for the IMF.

Basically the IMF seems to behaving like the early days of Ben Bernanke. "Threatening" to lower interest rates, or buy the long end of the curve. Doing what they can to keep speculators from flying off the deep end and driving gold through the roof.

This statement in the article is concerning: "The existing Central Bank Gold Agreement, which limits gold sales by central banks to ensure the market is not flooded with bullion, is in its final year and is due to expire in September. "

It does help to realize that governments and monetary system have levers they can pull to try to limit golds rise. To me this indicates gold will need to build up enough pressure to eventually overcome any shenanigans going on by the big players. When it does, it should be similar to the stock market collapse, except in reverse. :)

So I'll be less quick to pile into gold positions, hoping for a pullback. If I am wrong, I'd rather miss the entry point and be late to the game, than get yet another smack down by the market on my P/L statement.

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