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January 5, 2004 |
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For the third year in a row the price of gold reached its highest point of the year in the month of December. However, unlike the last two years the highest open interest month – using averaged COT reports – was November.
Despite the sell off in December, gold ended 2004 higher than it closed out 2003. Under the assumption that the U.S. dollar will weaken further this year, a similar expectation can be made about 2005.
That being said, gold is unlikely to hit new highs in the near term. Rather, the rally that took gold above $450 an ounce was based upon a big tech fund gamble…these funds have been liquidating their positions since December 7 (COT), and could continue to do so for some time. “It would take a mighty dollar crisis for gold to get back on track this year.” Dec 8, 2004 The above quote needs to be updated: “It would take a mighty dollar crisis for gold to get back to its 2004 highs this year”. Although I, like many, anticipate such a crisis (i.e. the dollar index falling sharply below 80), it may be wishful thinking to believe such a crisis is imminent. Conclusions The U.S. dollar index (Mar) closed at 82.70 on December 10 when spot gold was at $434 an ounce. The U.S. dollar index closed at 82.70 yesterday, and gold fixed at $426.40. Don’t believe those who argue that the U.S. dollar rebound is the only thing driving gold lower today. Rather, commercials have carried an extreme net short position, and tech funds an extreme net long position for some time…one party had to win and spark an outsized move in gold. And yes, it looks like the commercials have won again (the statistics we have to work with are only current as of Dec 28). Although many are calling for support at $420, it may be too early to speculate about a floor. |
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