Last Weeks Substantial Precious Metal Gains Results In Profit Taking

May 28, 2008 | By | 1 Reply More

After hitting over $925 an ounce, gold for June delivery fell by just under $18 at Tuesdays close. Silver, which recorded a near 8% rise last week followed suit with a 4.5% drop.

Platinum and palladium also fell from earlier highs leaving the precious metal sector under some pressure.

Amongst the factors given for the fall was the a decline in the price of oil, a steadier dollar, profit taking after last weeks substantial gains and perhaps some price manipulation in the options market.


We cannot possibly comment about the latter reason but clearly the other factors combined would have a lowering effect on the sector in the current economic reasoning.

How long can we expect to see the rise and fall of oil and gold move in tandem and just how logical is this situation?

If, as has been suggested by politicians and some analysts, the oil price has surged due to heavy speculative buying what will the effect be on gold when the gamblers reverse course and close or short oil ?

Reports today suggest that worldwide oil demand is being met for the time being.

If the oil price dropped to below $100 a barrel can we expect gold to drop maybe below $800 an ounce?

The fundamental reasons for being bullish about the yellow metal will still remain in place.

Weak dollar, US economic slowdown, possibility of even more rate cuts in a (vain) attempt to get the economy back in gear, escalating war expenditure, etc., etc.

We are of the opinion that it will not take much of a pull back in the oil price to push gold sharply down in the short term due solely to the present misconception that the two are closely linked.

Never let it be said that logic, and not sentiment, is the principal market mover!!

The next few weeks could show investors more clearly the likely longterm outlook for gold as the tie to oil unravels. Let us not forget that annual gold production is down, as is platinum, and that the South African power situation is years away from being resolved.

Factor in political and labour problems and escalating production costs surfacing in many countries involved in mining and the rapidly growing Chinese involvement in under developed but resource rich African nations and it becomes clearer that precious metals in common with base metals and agricultural commodities will have problems meeting escalating demand.

We strongly believe that the longterm outlook for precious metals, gold in particular, remains strong. The challenge will be waiting for and recognising the buying opportunities.

Did´nt Warren Buffet say that “buying value for the long term was the secret of his success” or words to that effect.  




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  1. says:

    Gold and Crude oil have decoupled greatly since March 17 08, illustrating Gold’s dependence on easy money and not inflation to drive it higher at this stage in the bull cycle.

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