Gold: Putting The Pieces Together

By @ibtimes on

By Kishori Krishnan Exclusive To Gold Investing NewsTough

Ho…Ho…Ho…and you thought gold was hot, and that your passion for the king of metals would give you enough reason to cheer, by the end of the year?

You thought wrong.

If the Dubai crisis has not helped shape your mind about the economic train wreck headed your way, putting certain other indicators in perspective might just do the trick.

Dubai’s debt problems have not just dented expectations that the UAE could return to solid growth next year, despite government posturing. It has also triggered a continuation of the global credit crisis.

Daily announcements of European sovereign debt downgrades are, sure-as-rain, likely to result in defaults. Debt traps abound.

There is a run on the US dollar and US Treasury default, “made certain by the total lack of remedy or reform in the US alongside rampant debt monetization and a clearly insolvent US Federal Reserve.”

Never mind the doomed US financial system, given that gross debt issuance in the US touched $7 trillion, in fiscal year 2009. The facts are as clear as day - gold is caught in a downward spiral.

The metal seems to have entered a speculative `mini-bubble phase’ and is akin to what crude was in 2008: a speculative market that bodes ill for investors.

Still think the yellow metal has a strong upside and will prevail?

Choppy markets

Why not take a look at what’s happening with the stock markets, for more answers.

What goes around, comes around, as they say.

For almost a year, gold was leading the market. Gold is now under performing the stock market, and there is reason to believe that the broad market top is closer than ever.

Topping is a process. After a strong surge, the waves would just be too choppy to trade. Much like the price action on the Dow and S&P500 the past month.

From a technical stand point, the major indexes are trading at a key resistance zone from Oct 2008. Clearly, the time has come for a correction or a melt down.

There are no two ways to this. If a meltdown occurs, gold will go down in price, along with everything else.

Moreover, with the stock market in a rather tight trading range since mid-November, volatility sure seems ready to make a comeback.

A trading range is simply a zone of uncertainty where a battle of investor perceptions of value quietly rages. The bottom of the range offers perceived cheap share prices and demand takes over from supply. Prices naturally rise.

At the top of the range, the opposite happens and supply takes over from demand to send prices lower.

Are you on your way up…or down?

Bulls abound

Euro Pacific Capital’s Peter Schiff believes gold is currently “climbing a wall of worry” but will eventually become as hot as tech stocks in 1999, “and start moving up $100 per day.”

Remember the bust following the boom in tech stocks? Gold is headed the same way.

Here are a few other pointers: On December 22, gold futures fell to the lowest level in seven weeks as upbeat home-sales data in the US lifted the dollar. The metal yesterday settled more than 10 per cent below its record closing price of $1,218.30 an ounce, a slump some analysts consider a correction.

“One can never underestimate the power of the urge to square up, to take one’s trading lumps and to reduce collective exposure,” Dennis Gartman told clients in his Gartman Letter.

Andrey Kryuchenkov, VTB Capital analyst, said investors should “stay long gold” in the first half of next year on concerns that US inflation is only set to accelerate.

No show

So, still expecting a rally?

“In the run-up to the year-end, we expect gold to see further pockets of long liquidation, potentially pulling back to the $1,050 area,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

A stronger dollar may leave gold and silver “vulnerable to selling pressure,” he said.

Gold prices are set to suffer going into the new year, as investors sell their precious metal in order to capture profits prior to the end of 2009.

And don’t forget the dollar.

“Commodities including gold will probably remain weak as long as the dollar continues its rise,” said Park Jong Beom, a senior trader with Tongyang Futures in Seoul. “With major market players closing their year-end books, volume is thin.”

Lower volumes continue to speed the decline.

So, the end of the year is on us, but is it the end of the gold story yet? Still want to ho..ho..hoard gold?

Fresh take

US mining major Firstgold (FGD:TO), which had spent $16 million over the last 24 months developing a processing facility at Relief Canyon, outside Lovelock Nevada, has had to rein in its horses.

China’s giant Northwest Nonferrous International Investment Company, which wanted to buy 51 per cent of Firstgold, has gracefully bowed out of the deal. Firstgold had lined up a $26.5 million deal with the firm.

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