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-- Posted Wednesday, 31 March 2004 | Digg This Article
June Gold: Close = $428.3, +5.50
The conditions that existed several weeks ago to compel prices off the 390 area still exist, and in fact, may have strengthened in magnitude as the month progressed. During the month of March, gold has rallied almost $40.00, which is quite a steady advance by any account. There are certainly emotional factors pressing gold higher, but support can also be attributed to currency fluctuations, the global interest rate environment, the counter-trend influence of paper-based assets, supply/demand models, etc. Having said that, I suppose many of those factors are also composed of psychologically driven factors.
There have been supposed terror threats against Texas refineries, we’ve had a continuing bout of horrible attacks in Iraq, terrorists conspiring to possibly build a bomb were thwarted in England, firefights against dug in terrorists near the Pakistani border continue, as do attacks in Iraq, and a list goes of geopolitical tensions continues to make headlines. Meanwhile, the US stock markets don’t appear too deterred, with the SP up almost 45 points the last week. However, US dollar bulls are still in the minority and are struggling to keep the June contract above 88.00. Notice that the dollar has been range-bound between the 8800 and 9000 area for almost all of March, so a breakout to either side is only a matter of time.
If you read Richard Russell’s comments over the last couple weeks you’d know he feels the dollar will erode further, that the housing market is a bubble that will burst and send the economy into a depression, that equities are overvalued and that meanwhile, gold is the place to park your cash as it will head towards $1,000.
As food for thought, I read an article last week but unfortunately I can’t recall where. The article references a bet between two economists in the early 80’s. One felt that rampant inflation would always exist simply due to increasing demand from an worldwide population that is growing exponentially. The other said that advances in knowledge and technology will continually allow society to extract natural resources at ever more efficient rates and therefore population growth/resource demand will always be satiated and inflation won’t exist. I suppose this would be a version of Moore’s Law, which stipulated over 30 years ago that the processing speed of computer chips would double each year. Anyway, the economists laid out their bet over a 10-year period, and by the 90’s inflation was not on the radar screen and the economist who proposed the efficient use of resource theory won handily. I believe they based their bet on the price of something like the CRB index, gold or something to that effect.
Can gold bears effectively use this same efficient-use argument on gold? In some ways, absolutely, as gold certainly has many industrial uses and will be sought for such supply/demand driven uses. However, the intangible element of gold possibly being an alternative to fiat currency, possibly being an inflation hedge or hedge against a depression, or possibly being a traditional safe-haven asset, is unique, and so is the fervor for which gold bugs perpetually support their precious yellow metal. In that sense, the comparison isn’t fully comparable, but nonetheless, the notion that mining efficiency will continue is something to consider. Whatever your view, the current trend in gold prices is clearly up.
The ECB is meeting to discuss what to do with interest rates, but it’s doubtful that any moves will be made. Keep your eye on this Friday’s economic/jobs data, for any major surprises will surely have a large impact on the dollar, and subsequently the gold market.
On the XAU chart, prices continue to escalate, with trading now occurring over the prior resistance zone of 105. We’re looking at the 111 area as the next layer of resistance, and expect that to be challenged in a month or so. The June futures chart shows prices clearly in a bull run, but some indicators are flirting with overbought conditions. Perhaps a pause and dip to the 418 area is in order before the recent contract high above 430 is taken out. We had looked for 430 to be breached before the end of March, but the closest we got was 428.5. If long as per TradeScope be sure to raise stops when suggested and lock in further gains. Review charts on these markets here www.britefutures.com. Remember that futures and options can be used for bullish or bearish positions; feel free to contact me to discuss trading strategies. Each contract/option = 100 ounces, a $1 move in a futures contract = $100.
To open an account and receive trading recommendations on gold futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com. Visit www.altavest.com to request a Free Starter Kit. Keep in mind that there is risk of loss in all trading.
May Silver : Close = 794.5, +17.0
This has really been quite a star for metals traders, having rallied almost $1.30 just this month! The supply and demand outlook for base/industrial metals continues to build a case for higher prices. Dramatic economic growth in Asia is underpinning silver’s industrial demand. We were expecting a run to 7.50 by this summer and we’re already beyond! In any event, I’d still suggest the market has much further to go this year. In fact, our TradeScope newsletter has been predicting $10.00 silver for some time! Some technical indicators that implied the rally would slow down, have not been accurate so far, but do be aware that many are in more overbought territory than ever, so at the very least a stall is anticipated. Keep your eyes on the larger picture, therefore any pullbacks will likely offer a chance to buy at better prices. Meanwhile, if you’re long as per TradeScope keep posted for updates. Remember, each contract/option = 5,000 ounces, a 1-cent move in a futures contract = $50. Contact me anytime to discuss strategies to fit your needs.
To open an account and receive trading recommendations on silver futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com. Visit www.altavest.com to request a Free Starter Kit. Keep in mind that there is risk of loss in all trading.
-- Posted Wednesday, 31 March 2004 | Digg This Article
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