Gold Stays Range Bound

May 5, 2009 | By | Reply More

Gold – will she, won’t she?

For yet another month gold stayed range bound between $870 and around $890 despite a sharp jump to $915 and an even quicker fall back the next day to $890’ish again just to keep our interest up.

That the present situation is confusing is to say the least, with so many conflicting reports clouding the issue.

For example we read that China is steadily increasing its reserves of gold and at the same time starting a dialogue with other Asian and Pacific rim nations concerning the substitution of the US$ as the currency of trade with an, as yet, unspecified alternative.

The country has already made arrangements to trade in the Argentine and other South American countries in yuan renmimbi, the Chinese currency, and has by-passed the US dollar.

If this should come to pass then it is almost a given that gold will feature in the mix, if for no other reason than that China will undoubtedly be leading the way. China has overtaken South Africa as the world’s largest gold producer and has, most importantly, very good relations with South Africa. Think that one through!

India imported 30 metric tons of gold in April, up 25 % on the year. Halfway through April observers were confident that the month would see a healthy rise in the yellow metal after the stagnation of February and March but even this news failed to bring about a sustained rally.

While all this was going on the PR people employed by governments and other vested interests were constantly telling us that the green shoots of growth were appearing and that all would be well by either during the third quarter or the end of the year or, in the worst case scenario, by early 2010.

OK, so the big US banks showed, on the surface some healthy looking returns to profitability, but looking deeper into the figures it seems that the taxpayer and a compliant government were responsible. The first quarter’s performance seems to us to be temporarily papering over the cracks and adding inexorably to the size of the eventual dollar disaster.

So now we know that the so called ‘stress tests’ that banks have had to undergo has resulted in the failure of Citigroup and Bank of America who are now having to lay plans to raise over $10 billion of fresh capital EACH! No doubt their ‘friends on the hill’ will help out, providing the printing presses can keep up with the demand for the greenback. Or could it be more taxpayer’s money! No, that it is not quite the same thing!

Here in our offices, as we struggle to make sense, and more importantly profits, in our favoured market sector, we can only marvel at the gullibility that our political masters and their acolytes in banking and finance, credit the investing public with.

To think that pumping more money and encouraging more credit will cure our economic ills, those same economic ills that have led to the US, the UK, and other so called advanced Western economies into the deepest recession for eighty years, is going to put us all back on the path to prosperity, is simply idiocy.

We can only conclude it is a case of   ‘ I’m alright Jack!’

Of course there have been other influences at work, the price of oil, scrap gold sales, declining South African production, the confidence factor in a stock market rally or bear market bounce, the effect of gold sales by the IMF, purchases by the SPDR Gold Trust, now the worlds sixth largest holder of gold bullion ahead of that paragon of banking virtues, Switzerland.

Nor must we ignore, despite our reservations, the technicals that influence so much the shorter-term price movements of gold and its partner, silver. However at the end of the day we take note that spot gold has had the longest rally since shortly after World War 11, every year since 2001 the price has gained ground.

“The trend is your friend” could be your key to a safe haven investment (aka. a store of value) in the years to come.

In the short term it is anybodies guess what direction gold will take. In early morning Asian trading today, Monday, turnover in the spot market was thin, reflecting indecision as the price stayed in the $890 range, London was closed for a bank holiday and when New York opened we saw a jump of $14 an ounce to $904.

This suggest to us that this continuing support above the $880 an ounce level is a recognition by the professional market players of the eventual consequences of the US and other Western governments inability, hopefully not deliberate, of pushing credit back into business, consumers and anybody else who wants a loan without a pretence of collateral, as a cure all for the recession.

The gold scenario has still got a way to play out, short termism will have its effect of undermining confidence, but there are now an accumulating number of factors that tell us that sooner or later those of us who stay in gold, buy in the dips, and take opportunities in the mining sector, will come out on top. By a Country mile!!

The inflationary scenario becomes even more mind boggling every time any government mouthpiece, including Obama and the intellectually challenged Gordon Brown, gives utterance.

Our plea is that if there is anybody out there who believes that there is a safer, or even better, safeguard than investing in gold or silver, please contact let us know.

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