Golds Flight To Safety Dampened By Short Term Trades

February 25, 2009 | By | Reply More

At 11.25 am CET the gold slide continued where it left off at Tuesday’s NY close, dropping to a tad above $952 an ounce before a sharp rebound to $956 an ounce 15 minutes later.

It would seem that the flight to safety that the dollar has been experiencing in the recent past has come to an end, at least for the time being, and this sentiment now seems reflected in the price of gold.

This situation, as we pointed out yesterday, is a reversal of the past experience of gold and the dollar moving in opposite directions.

Yesterday oil rejoined centre stage as it shed some of its earlier gains, adding a further negative outlook to the yellow metal.

Above all else it is the actions of the speculators that are influencing the gold price at this time.

With President Obama’s up beat message to the Nation yesterday causing US and other leading stock markets to bounce back from historic lows, the flight to the safety of gold was dampened and the short-term trades took full advantage.

We really do admire the President’s ability, together with his very talented speech writers, to deliver a resounding, confidence building message to the people, even though, to this observer anyhow, there were some contradictory sound bites.

  • Now we must ask how long it will be before the markets see through the optimistic rhetoric?
  • When will words be replaced with positive targeted action that will rally the US economy to be followed by the rest of the world?

So far the bail out plan seems to us to be distinguished by ambiguity, lack of direction and questionable thinking.

If we are right in our opinion then that can only be good for gold for a considerable time to come but we will not be surprised to see the volatility of the last few days continue with the spot price perhaps dropping as low as $925 an ounce, perhaps even lower, at some stage.

That gold will regain the $1000 an ounce level again within 6-8 weeks we do not doubt, then our expectation is that the strong bull trend will be maintained until there is evidence that the US economy has turned the corner and oratory has been replaced with soundly based, well thought through active management of the economy without any underlying political intervention to ensure Obama’s second term.

Then the big question that will influence the next stage in the price direction of gold will be the extent and the effect of the inflation that is building up in the US and other Western economies that will emerge as a semblance of recovery takes place.

US trading today will determine gold’s probable direction until at least the end of the week.

Should the price hold above $950 an ounce, this will be a good indication that investors and fund managers in for the longer term are not being frightened out of the gold market by yesterday’s turn of events.

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