A missive just received from Jim Sinclair in a question and answer form.
Gold traded inversely to the dollar last week (directionally, but not tick for tick). Now the weak euro is a drag on the gold price.
Why are we now seeing this type of behavior and when can we expect gold to resume its appreciation?
CIGA Brian S.
Your question reflects, I am sure, what people are worrying about.
The cold hard fact is that the hedgies, driven by momentum algorithms, have reduced their position, continue to sell or have gone short gold. This week the hedgies made a pass at gold shares, from major to junior, increasing or re-establishing their short position.
The community still follows those that call tops. So far each top call has failed to do anything but take people out of their position.
There are three factors to think about right now:
The euro is seeking it lows again from which intervention has come, and from which intervention must continue to come right here and now.
The cash price of gold, which had fallen away from the delivery month future, is now moving back. This indicates the physical market is firming.
The Libor rate continues to rise which indicates that the euro zone rescue package has no shock and awe in it at all.
The hedgies, the new masters of the universe, feel certain that they can run any market, anywhere at any time. That assumption could come to a screeching halt now because a crisis anywhere is a crisis everywhere.
The hedgies are running the gold price based on algorithms and the community is having conniptions based on seasonality.
Gold will trade at $1650 and better. These reactions are normal to markets and we have seen them together a thousand times or more.
Your degree of concern is unfounded. The risk in this trade is to the hedgies, not to us.
The expectation of a sell off going into June is challenged by the fact that a crisis anywhere in a global market economy is a now crisis everywhere. This concept is backed by the firming cash physical to cash contract price of gold and the action of Libor. Let's not forget four failed interventions now in the euro and the absolute necessity that right now, this minute, the euro intervention must occur again.
So, according to Jim we are still on course for $1650/oz for gold prices.
Have a good one.
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