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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