|
“Some worry that the March peak was THE peak for gold. This is very unlikely considering the world situation and the economic imbalances today. Plus, demand for gold is growing strongly…” Aden Sisters
Being one of those people that think the March peak in gold could end up being the THE peak, it is difficult to read many of the ‘go gold!’ commentaries being written today. In the case of the Aden Sisters, their flippant use of the phrase ‘demand for gold is growing strongly’ contradicts the action in the marketplace, and it threatens to make a mockery of their previous recommendation to purchase GLD. To be sure, if demand for gold is currently growing strongly, why did GLD just see its gold holdings plunge?
Furthermore, if demand for gold is still growing strongly how have the commercials been able to reduce their net short position to its lowest total this year (this should be confirmed later today)?
The reality is that investment demand for gold from hedge funds, central banks (increasingly concerned with domestic inflation), and private latecomers, recently hit a wall. While the pro-gold crowd is content to ignore this reality and focus almost exclusively on longer-term possibilities, UBS analyst, John Reade, recently covered current events best:
“We have heard from our cross-asset sales team of moves to sell gold and Treasurys to buy equities. If we see longer-term holders selling gold, perhaps on a view that the dollar is basing and it's time for reflation trades, then gold could suffer more protracted profit-taking.” April 25, 2008.
A Long, Cruel Summer For Gold?
While it is too early to to put the nail in the gold bull coffin, recent events suggest that the current gold correction could become something more ominous. These events have included the Fed backed Bear Stearns bailout, the G7 statement change (which hinted at future currency intervention), and, most recently, the widespread speculation that the Fed is done cutting interest rates. When combined these events suggest that no major U.S. financial player will be allowed to fail, that the U.S. dollar will not be allowed to fail, and that commodity prices (priced in USD) will no longer be taking a free Fed backed ride. In other words, although the U.S. dollar has definitely not ‘bottomed’ in the largest sense of the word, it may be done falling for awhile…
In short, hindsight tells us that the smart money sold $1,000+ an ounce gold and that the latecomers, once again, had their heads handed to them.
 |
It may be wishful thinking to conclude that a bullish set of events can quickly align to propel gold back above $1,000+ an ounce. Watch the 200-dma level and COT/ETF statistics for clues to what may happen next, and go safely with the knowledge that if the USD decline doesn’t resume a listless summer awaits an anxious gold bull crowd.
|
|
