December Gold:  Open= 618.5  High= 628.3   Low=617   Close= 627.8   Change: +8.5

Two days and $21 later, the gold market is making a few believers in its recovery.  Futures prices have broken away from the influences of crude oil, and been doing so for the past week.  It wasn’t until the December contract recovered back up above $600 that traders were willing to take notice.  A day after a slight close above the 200 day moving average, gold prices rallied another $8.5 and finished strong into the close.

Clearly though, gold bulls have shaken off bearish influences were keeping them at bay, whether it was weaker energy prices or stale geo-political tensions.  Creeping back into the dialogue is ‘diversifying away from the dollar.’  High oil prices might harm the global economy thus giving gold a flight to quality attraction, but with easing energy prices don’t offer the same support.  Yet, this economic growth numbers in the US are not rebounding.  Could the effect just be lagging?

Perhaps, but overall costs of doing business are rising, too.  Oil prices are not the only commodity to see price inflation.  The cost of metals, grains, raw materials, and certainly health care, are taking a toll on the bottom line. This also is coupled with the diminishing purchasing power of the dollar. High energy prices are just one of many reasons that the US economy is cooling off.  The other major factor is the overall structure of US debt, which is looming and large.  We’ve been living with this spending pattern for decades, so why the concern now?  The position of power the United States held post WWII is changing.  The US battled the Soviet Union for hegemony and succeeded.  Global growth was fueled by spending from the US for 20 years.  At what cost though?

The United State isn’t the only economic engine now.  China can barely control their growth, and even that might be overstated.  Europe struggles at times, but is a major trading partner and rival (though Boeing might dispute that nowadays).  Globalization is upon us.  Why should nations like the UAE hold 98% of its assets in US dollars, instead of more diversified holdings? That answer is that they should.  And nations have been moving out of US dollars and into the Euro and gold.

Old Europe is the world’s largest holder of gold reserves, followed by the US, and then the numbers drop considerably.  Russia holds maybe 5% of its reserves in gold.  The UAE publicly announced that it would move its dollar holdings from 98% to 60 to 90%.  Of course, we’re not talking massive amounts being moved out of the dollar but they’re not the only country doing so.

It appears that gold prices are on their way to recovering some lost ground over the past year.  Current target zones lay between $670 and $650.  Eventually, bulls will need to see the dollar drop to continue rallying, but current strength is impressive.

Support comes in at $625, $620, $611. Resistance is seen at $630, $640, and $650.

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