Has there been any fundamental change to the long-term outlook for the yellow metal? Not in our book, if anything the US economy and the dollar are sinking ever deeper into the mire.
That brings us to our headline “gold – buy the dip today” while the bullion price is below $990 an ounce.
After a weekend of reflection on the hot air coming out of the G20 meeting, reality is likely to step in, leaving it unlikely that gold will stay below $1000 an ounce next week.
There seems probable that the outstanding day to day and longer term influence on the gold price will remain the US dollar with the oil price having less input than in the previous twelve and more months.
Even if we are wrong in the very short term there is little likelihood that the dollar will enjoy remaining as the flight to safety currency if the stock market weaken.
Those that take this path quite understandably want instant access to cash to take advantage of any perceived continuity of the current stock market strength, bear bounce or otherwise. Right now the markets have looked flattish all week but there may be a last strong bounce before the inevitable.
We have heard some mention of the dollar as a carry trade currency but doubt whether this is yet a realistic scenario and can account for any significant change in its value.
Our favorite technical analyst tells us that there is a ´nice´ head and shoulders pattern forming in the Dow and S & P 500 that presages a significant fall in around six to ten weeks.
If and when that happens the fears of hyper inflation will re-emerge as risk takers lose their appetite and government may be strongly tempted to enter another round of so called quantative easing, better known as money creation!
The 400 tonnes of gold that the IMF is offloading has undoubtedly had a dampening effect on the market but rumours are strong that a deal will be struck with the Chinese at the summit this weekend.
Even if this does not occur the amount although significant, is not likely to overhang the market for long before the safe haven of gold lures more and more risk averse investors into its folds.
May we leave you with this thought “ don’t delay, buy the dip today´!