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« The Federal Reserve Cuts to 1%! | Main | Agnico-Eagle Mines Limited: Opportunity or Trap? »
Tuesday
Oct282008

Gold: Three Consecutive Up Days!

US Dollar Chart 29oct08


Some light relief for gold bugs as gold edged up for the third day in a row and now trades at $750.70 in early trading on the Sydney Stock Exchange. One swallow does not make a summer, but it is encouraging to see a slight improvement in gold prices. The Gold Bugs Index (HUI) also improved today gaining 13.93%, although it still languishes at an astonishingly low level of 172.69.

Gold Chart 29oct08

The US Dollar was having a reasonable day but then dropped in late trading from 87.6 to close at 86.2 as the chart above from INO.com shows.

The DOW also put in an extraordinary day by gaining 889.35 points or 10.88%.

These are very unusual and very volatile times with the markets out foxing everyone as they race off in one particular direction and then back again on the latest sound bite. The presidential election is now right on top of us so just maybe some semblance of order will prevail once this event is behind us. When the dust settles the problem of the mass production of paper money will still be there along with its inflationary tail wind.

Tomorrow the Federal Reserve will make its pronouncement on the expected rate cut which is widely anticipated to be 50 basis points taking it down to a mere 1%. A move such as this would normally have sent the dollar lower so it will be interesting to see if the flight to cash neutralizes the rate cut.

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Reader Comments (10)

According to my view, the dollar is easing its rally, as investors anticipate on the rate cut of 50 basis points. This slightly weakening movement of the dollar, makes gold go up a bit accordingly. Nothing new though.

I must say I've recently become abit used to all the market volatility. Its almost scary just to say that. I'm gonna miss this crisis volatility when its passed... :(

More news passed the grid recently;
There is a rumour going round, that Wallstreet is going to close its market for a few weeks in the coming future. There is supposed to be more fear underway from investors grinding their way out of hedgefunds in the coming month(s).
Estimates have risen of a max. probable 25 procent closure of todays number of hedgefunds as investors pull out due to fear (In my opinion a bit late, as I'm out for weeks now already after sensing these signs).

There are some interesting positive factors coming along also;
The commodity sector is back to low price ranges of the early days of the commodity boom. Lots of investors are doubtful about the continuation of the boom. Is it dead or just stunned...is a common question nowadays.
I say its stunned. Hit with a stick on the head and lying on the floor to get back up its feet with the help of the emerging economies. It should be clear to you, that countries with emerging economies have made very large sums of money in their manufacturing and mining activities in recent years. So they have more surplusses that the existing economies that are battered directly by the credit crisis.
That is where the demand will come from, before our own economies will rise up again.

In the mean time, the gold markets production costs still averages ~500 dollars a troy ounce. So when capital is not available, (or hard to get) the logical effect is closure of mines that have troubles keeping their mines profitable. Remember 500 dollar is average. Startups have way higher costs including the junior miners.

This changes the market significantly. Because demand is already soaring in the physical market, and when the postponed inflation wave hits in time, there will be less miners available to cover demand. And for reopening these mines, you have to look at gold prices in $1200 range. So altogether, gold could be up to make an enormous rally this winter if the rate cut will help cool down the dollars rally.

If not, we're going slowly to a zero percent overnight rate, and deflation will enter the markets significantly.
O and don't forget the credit card bubble bust that is coming. Defaults are up 5.5 percent of total outstanding in this industry and could move higher passing the 7.7 (I believe it was) percent that happened after the Tech bubble in 2000.

Invest wisely,

October 29, 2008 | Unregistered Commenterde Graaf

wow de graaf, from how youre talking i ALMOST thought this was YOUR website ! youre still here with your deflation theories??

October 29, 2008 | Unregistered Commenterjoe

Hahaha Joe, every fine with me here.
I was shooked by all the awful macro-economic outlooks Gold-prices.biz did not put in their colums, so I just gave them an example for a while. :)
Hope you enjoy my contributions. They can always ask me to become their contributor for macro-economic and politic issues. ;)

With the theories; yeah but deflation can be seen in two ways as I talk about it. I wasn't always clear about that. I still learn to every day.
Deflation as I mentioned it, is mostly asset-deflation (deleverging effect).
The other type would be monetary deflation which is not happening yet I should recall. As lowering of the overnight rate continues, and slowly enters zero percent, then you have to open your eyes for deflation. But their are more tools voor Uncle Sam to keep money flowing. For instance, putting a cap on treasury bond yields and buying near-maturity bonds back from (foreign) investors to keep demand up. This lowers the middle to long term interest rate. Also they already are using currency swaps between FED and the EU central banks to keep demand for the dollar high, thus lowering rates again.

Only problem is, given the numbers, is isn't helping..yet. So don't close your eyes for Monetary deflation...yet.

Say Joe, if you ask the editors to make longer and better pieces for this website, then I don't have to add that much to fill in the gaps.
I'm (partially) kidding. I love to contribute to you all. As long as it adds something to this volatile reality and the gold prices website.

October 30, 2008 | Unregistered Commenterde Graaf

Shorting gold.

Gold is immemorial; but, now is not a good time to enter. Indeed it´s starting to make sense design a portfolio strategy to short gold, for a certain period of time. It bubbled since 2006 and now its popping. Short for how long? Maybe during one year or when gold hits $400-500: what happens first (which is, in my humble point of view, the fair price to invest, seeking long time wealth preservation).

HL is a good prospect to short, GLD, KGC are too.

Is highly likely we are experiencing a change of short-term trend, reversing the bull-bubble market on gold of the last several years. A global recession, a victorious deflation at the short term, a huge liquidity trap we are enter into right now, falling commodities prices, oversupply everywhere, will offset at the short-term the threat on inflationary forces, because the Fed is not printing more money (at least by now; instead, is selling more T-bills which is in high demand) leaving only the huge, mammoth debt as a pending issue, at all counting for inflationary pressure at the short term (2008-09). There are lot of anecdotal evidence everywhere, people are hoarding cash, US dollars to be specific, more than gold. The run for the dollar might not be a coincidence.

cheers!

October 30, 2008 | Unregistered CommenterChimera

Chimera, Interesting stuff - please let us when you make a move and what success you have with it.

October 30, 2008 | Unregistered CommenterGold Prices

de Graff,

If you wish to compose an article and send it to us we will post it on this site for you - under your name.

The more opinions we have the better is our stance, so please have a crack at it!

October 30, 2008 | Unregistered CommenterGold Prices

Gold Prices and De Graaf, thank you for the opportunity, I´ll do it. Where should I send you the piece when is ready -which address?

October 31, 2008 | Unregistered CommenterChimera

Well thank you.
I'll take this opportunity with both hands. I think about writing a minimum of 1 piece per month about the macro-economic outlook. And in times of crisis and political turmoil, when dark clouds cover the streets around the globe, I am willing to spur up my contribution rate to Gold-prices.biz whenever I feel like it.

Then the final issue; We gotta talk about my rate now... :)
What I meant to say was; Where can my contributions be donated at. Feel free to supply me with an email address.

regards

October 31, 2008 | Unregistered Commenterde Graaf

Sorry, I misread. Forget my previous comment. I´ll let you know the outcome of these tradings.
:-)

October 31, 2008 | Unregistered CommenterChimera

Our email is bob@gold-prices.biz, however as this is a free site we are not able to pay for articles, but the author will be credited for their work.

October 31, 2008 | Unregistered CommenterGold Prices

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