The Kitco Gold Index
Gold prices dropped today by around around $15.00/oz as the above chart shows and as we can see the main driver behind the fall was not the actual selling of gold but the appreciation of the dollar. As we have long said gold prices are to a large extent an inverse play against the fortunes of the US Dollar.
The dollar would appear to have risen on the back of further depreciation of the Euro, which is being hampered by the uncertain outcome of the Greek situation in terms of their sovereign debt, a large part of which is about to be rolled over during April and May. The problem is that those who carry this debt will want a correspondingly high rate of return in order to shoulder the risk involved, which Greece can ill afford.
Will the European Union act as a union or will Germany hold out and refuse to allocate German funds to their European partners. There is always the danger that if they do cough up, then it could be become contagious and open the flood gates for the other debt laden members of the union to come banging on the door for a similar type of financial support.
In the short term the battle for the $1100/oz barrier will continue and may take some time to resolve, however, over the longer term we are firmly in the camp of the gold bull. The perpetual printing of paper money will indeed be its own downfall and gold will go on to rule supreme.
This shake out will make many investors nervous and some will sell their holdings. This has been the situation all the way up from the $260/oz level, a run up, a sell off, consolidation, and guess what? Another run up.
Usually at this time of the year gold prices hold up fairly well through March, April and May, yes its a big generalization and is not cast in concrete so it could well be different this time. For now we are sticking with our core positions as they are holdings for the long term, however, you may wish to lighten up, its entirely your call, we can only tell you what we are doing with our money and as you know we do get it wrong from time to time.
At this time we also need to keep an eye on the broader markets as a sell off is still a possibility which begs the question of whether our trusty miners are tied to gold prices or are they tied to the stock market?
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