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« GOLD: Is this correction over? | Main | Gold Prices: Portfolio Update 26 February 2007 »

GOLD: A case of baby and the bath water?

A sell off in the stock markets across the world triggered by a 10% drop in the Chinese stock market has taken gold down with it.

News from China has given the market a scare. But is it all down to the Chinese? We think not. The markets in general were pushing up against the top of their respective trading ranges and gold was no exception. We can see from the chart that gold had moved higher in a short space of time putting a lot of day light between gold itself and both the 50 Day Moving Average and 200 Day Moving Average. The other technical indicators namely, the Relative Strength Index, the MACD and the Stockastics were all sitting in the ‘sell’ zone. So we could assume that a technical correction was on the cards regardless of the sell off in China.


We see China as being the ignition that precipitated this fall in gold prices, but it could have been any one of a number of events, incidence or even a comment by one of this industries well-respected peers.

So where do we go from here? Well the fundamentals for gold haven’t really changed in our opinion; the swing towards gold as a store of value will continue. We would list some of the fundamentals as follows:

· No new large discoveries of gold deposits putting a damper on supply
· Lack of previous investment for gold exploration
· It takes 5 to 10 years to bring a new mine to production
· Falling gold production worldwide adding to its scarcity
· Gold EFT is taking gold off the market thus reducing supply
· In the last Bull Run 1970s to 1980s gold prices increased 20 fold
· Metrics: DJIA vs. Gold, about 18 ozs buys the Dow Jones, it has been 1:1 in the past and could be again in the future. Assuming the Dow Jones remains above 10,000 then the gold price could hit $10,000.
· Gold at its previous high of $850 adjusted for inflation puts the gold price at $2000 plus
· Geopolitical uncertainty, a nuclear Iran is creating world tension which pushes up the price of gold
· A Dictatorial South America imposing restrictions such as increased taxation and nationalisation will deter investment and reduce gold production
· India is growing and the sleeping dragon of China has awoken, their hunger for gold will drive gold prices higher
· Internet: information travels around the world in a nano-second, reactions to news, true or false, will add to the volatility of the gold price
· Web trading: increasing everyday, resulting in the trends being more exaggerated than ever before as millions of traders can move funds quickly.
· The mania that we traded in during the last Bull market will be nothing compared to the coming Gold price explosion due to the above and the fear and greed mentality that will add to volatility in this small and thinly traded precious metals sector.

Finally, the demise of the U.S. Dollar will sooner or later ignite a stampede to a ‘safer’ market sector, where is this sector? There are a number of possibilities, which include property, currencies, energy, and precious metals? If a small amount of this cash goes into gold and gold mining stocks it will, our humble opinion, make a dramatic difference.

Conventional wisdom tells us to buy on dips, we consider this to be such a dip. We anticipate that the dust will settle in a few days time resulting in cheaper gold prices and presenting us with a new, cheaper entry point into the gold market.

04 March 2007

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Reader Comments (3)

The markets may see gold rise to and possibly beyond the $1000 mark.
Mr Moe Maktari of MGC (trading name)has been buying up surplus deposits on behalf of Saudis and other middle eastern clients, mainly royals. What seems to being going around is speculation that he has aquired to date so much in which no amount can be said at this time but all has been privatly of the market purchased but he intends to purchase on the market this coming quater and spill all what he has onto the market soon after. Not only will he and his backers make possibly billions not millions but this could without doubt crash the gold market and even the whole of the commodities market. Maktari recently purchase 110 tonnes in Switzerland on behalf of a royal from the middle east. If he does make a rapid purchase of gold at trading price, then I for one will pull out of the market as the risk could prove to great a loss for my clients as a drop could mean.....well, from what it is now $900 to maybe only $500. It could happen and it may just.

January 16, 2008 | Unregistered CommenterMark Longhurst

Maktari to dominate gold prices??????????

January 16, 2008 | Unregistered CommenterMark Longhurst

The "Gold Hand" seems to be dominating the private gold market at the moment.
Maktari was vertualy unknown until he became involved with the Saudis or with his middle eastern clients.
Maktari has triggered-off a large panic sell across the gold markets starting with India in which saw prices of gold fall a little after speculation, and solid reports see him trying to purchase gold on the market at full price to see an eventual shortage or drop in the amount of gold being traded. Confirmed reports across the globe indicate that prices of gold will fall after he drops a surplus amount of gold onto the market to be traded after buying up so many thousands of tonnes which he has been doing over the last year or so on behalf of his clients from the middle east.Other reports indicate that he is currently in talks with two private sellers within Europe for a very large quantity of gold that will see it change hands in the coming week.
Simon R
Bloomberg UK
Please note that this comment is a personal comment and not one of Bloomberg UK or Bloomberg USA

January 20, 2008 | Unregistered CommenterBloomberg/Simon R

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