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« Randgold Resources Limited: Prepare to Buy! | Main | Hecla Mining: Short-term buy! »
Thursday
May292008

Gold spooked by USD and Oil

Gold HUI Oil USD  Chart 30 May 2008


Gold has now backed off to trade at approximately $877/oz; the reasons behind this fall are attributed to the rise in the US Dollar and the fall in the price of oil.

The dollar occasionally puts in a mini rally to a fanfare of this it the start of a major rally back to its once mighty status. Well the printing presses have not stopped so the dollar continues to be diluted by the minute. Nothing goes up or down in a straight line and that goes for the dollar too, as it digs its fingernails into a slippery wall in a vane attempt to stop the rot. Apart from the odd upward short lived surge the dollar will eventually find its new level a lot lower than it is today.

A rise in the price of oil is perceived to be inflationary and therefore good for gold. Oil has put in a terrific run from around $50/barrel to $130/barrel thus adding some upward pressure to gold prices. However the above also applies to oil, which has backed off slightly and looks to be taking a breather. The speculators with long positions in oil may also seek to lock in their profits and retire to the sidelines for now. We are of the opinion that once the current shake out has run its course oil will resume its climb as the demand for energy continues to grow and there are no major discoveries lining up to replace the current dwindling oil fields.

As we can see from the chart over the last few days the correlation of the dollar, oil, gold and the HUI is a fairly sensitive one. So as we roll into the dull summer season we must be aware that situations such as this one will generate buying opportunities and we intend to try and take advantage of them. It might be a sleepy sort of summer but that’s no excuse for you or us to nod off. These are times to do your homework and establish which precious metals stocks would enhance your portfolio and plan to be in position and fully invested by the end of September. The year-end rally will exceed most projections - you have been warned!

Have a good one.

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Reader Comments (3)

One thing bothers me-maybe you can shed some light on it. We buy gold (buy & sell) and profit (hopefully) But what is that profit. The profit is expressed in dollars which are shrinking fast. There is also the profit of excitement and anticipation, but they can't be expressed in monetary terms.

'I made $1000 on that turn around, but that $1000 is only worth $800 the next day.'

bobi

May 30, 2008 | Unregistered Commenterbobi T.

bobi,

If we look at a chart of the usd we can see that a year ago it was about 82 on the index, today it is down to 72, which using easy numbers is about a 12% drop. This depreciation has to be covered in our estimates, we aim to buy a stock that will double in the next twelve months thus covering the depreciation of the Mickey Mouse paper that we get in return.

On very short-term trades we are happy to take a small profit but the turn around time has to be quick, say a 10% gain in one month, if we can do that 10 times a year then we are winning. But it is a big 'if'

June 1, 2008 | Unregistered CommenterGold Prices

Oil i a big factor in the gold prices, this link has been send to me and i thought i would share it...
http://www.onlineopinion.com.au/view.asp?article=7437&page=1

June 3, 2008 | Unregistered Commenteranders

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