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Is OPEC Tiptoeing Into Gold Bullion?

By: Rick Ackerman, Rick's Picks

-- Posted Tuesday, 6 December 2005 | Digg This ArticleDigg It!

Rick’s Picks

Tuesday, December 6, 2005

For investors who’d rather be smart than lucky

Comex gold has been making short work of my hidden pivots, and not just the little ones either. There was an important hidden resistance at $500.00 that “should have” slowed the rally down; instead, it exhibited about as much stopping power as the Orleans levee.  There were a few others as well, but the February futures contract shredded its way past the last of them yesterday, clearing a path to at least – here’s a real number for all of you lurkers – 533.60. That’s the closest hidden-pivot resistance above Monday’s 512.60 close, and I expect it to show some stopping power. If it gives way easily, though, we should infer that another at 553.30 will be the next stop.



What could account for gold’s amazing strength over the last month? One story making the rounds is that the Saudis and some of the other oil producers have been moving into gold in a big way. That sounds superficially plausible, except for one detail: If oil revenues really were moving into gold in a big way, the rally would be far more powerful than the one we’ve seen. Crude oil constitutes a huge global market, gold a microscopically small one, and my unscientific guess is that even if just 10% of the oil producers’ revenues in a given month were to be shifted into gold, bullion quotes would reach $1,000 in a trice.


Mining Share Lag


Yes, I know I argued here a while back that the deflationary economic collapse we face is unlikely to provide the maniacal environment for precious-metal investments that many gold bugs have always hoped for. But if the story about the Saudis is true – and it probably is – quite a bit of OPEC flight capital could find its way into gold, pushing quotes significantly higher while the global financial system is still relatively strong and liquid.


That is what I believe we are seeing now, even if it’s just a trickle so far. One robust piece of evidence that supports this thesis is the relative sluggishness of mining shares. You can be sure that if the princes of Saudi Arabia and Qatar are acting to hedge their dollar exposure, they are piling up every ingot they can get their hands on, not scaling in shares of Durban Roodeport, Coeur d’Alene et al.  Physical metal is, and will remain, far more desirable for their purposes -- and let the rest of us scramble months or years down the road for that part of the supply that must still be gotten out of the ground.


A Step at a Time


Whatever happens, you can count on Rick’s Picks for measured, objective forecasts rather than pie-in-the-sky price targets. For starters, there are the two hidden pivots mentioned above. They might not sound very exciting to anyone who has been waiting for gold to go nut-so. But they should help allay any anxieties you might have that bullion’s rise is about to reverse punitively. It could happen, of course, but as far as I’m concerned, that would be all but impossible before a minimum 533.60 is reached. And if that hidden pivot, too, is easily brushed aside too, you can infer with confidence that an additional $20 of upside lies in store, to at least 553.30.


Hidden pivots can provide us with objective benchmarks to $10,000/oz. and beyond if they have to -- so what’s the rush? No matter how confident one might be about gold’s prospects, it can never justify throwing caution to the wind. If we are going to be right, let’s be right one relatively riskless step at a time.

Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2005, Rick Ackerman. All Rights Reserved. 

-- Posted Tuesday, 6 December 2005 | Digg This Article


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