Gold Jitters Sweep Streets
Email this article By Kishori Krishnan Exclusive To Gold Investing News
The gold bugs are running scared. Unable to trade, lacking any clear direction, they have turned cautious and prudent. They are clearly running for cover.
News of Abu Dhabi’s largesse gave an instant boost to Asian bourses. Not so for Greece, with its deteriorating public finance situation.
Incidentally, Greece is not alone among eurozone countries struggling to deal with their finances. Ireland last week announced unprecedented cuts in public sector wages and unemployment benefits, while Spain promised a 4 per cent reduction of spending in its 2010 budget.
Clearly, the world economy is not in the pink of health yet.
To make matters worse, the dollar decided to get a spine.
On Tuesday, the dollar rose against 14 of its 16 major counterparts as futures indicated a 48 per cent chance that the US Fed will raise its key rate by at least a quarter-percentage point from near zero by June.
Dollar dance
While the dollar has fallen 6 per cent this year, bullion has increased 28 per cent.
The greenback is trading near a two-month high against the euro. It had climbed to $1.4586 on December 11, the strongest level since October 5.
Gold’s recent rally has been largely due to the dollar devaluation. A dollar rally, which appears to have cleared off the start mark, is bound to hit gold hard.
Any analyst will tell you that gold will go up when war drums can be heard on the horizon, or when economic disasters continue to rock our collective boats.
The yellow metal starts sliding when the dollar gains strength. A rising US dollar curbs demand for precious metals as alternative assets.
On Monday, gold futures for delivery in January rose $4.60, to $1,124.10 per ounce. The ICE dollar index, measuring the greenback’s strength, fell a quarter per cent to $76.75.
On Tuesday, gold for immediate delivery was little changed at $1,124.90 an ounce in early trade in Singapore, after falling as much as 0.3 per cent earlier.
For another pointer, check out this move: Last week, when bullion sank 4.2 per cent, the dollar reached a two-month high against the euro.
Go for the gold?
So, is it time to hit the BUY button? Why go for it now?
As Brian Nick, a New York-based investment strategist at Barclays Wealth, which manages $221 billion notes: Gold should be held when governments cease to function and currencies are worthless, or when inflation is surging.
See any of that happening now?
Maxwell Bublitz, who helps oversee $3.5 billion as the chief strategist at San Francisco-based SCM Advisors LLC, observes: “People have this knee-jerk reaction and say that you want gold as a hedge against inflation.”
Even Bloomberg notes that 1980 gold investors are still catching up.
As for Wells Capital’s Paulsen: “Investors seeking to protect themselves against inflation should buy commodities, which are cheaper than gold.”
Nowhere to go
“Gold is clearly an awful investment” and is at best moody, “having been ignored when it should have been climbing and allowed to fall when it was expected to rise,” maintain some experts.
Moreover, with news that the US administration along with Wall Street’s investment bankers have no apparent motive to permit absolute honest supply and demand mechanisms to shape the gold price, the revaluation of gold to its historic high has proved to be just another example of exhuberent speculation.
President Obama’s meeting with the bankers on Monday ensured a “much watered-down financial regulation measure”…that will “no doubt be Liebermaned in the Senate.”
Not to forget, in the first three quarters of this year, the `financial services’ sector spent $344 million on lobbying to protect its interests.
Given that the President’s “fat cats” are having a bad time controlling the accounts, and that the real economy moves, at best, sideways, taxpayers will once again be called to cover the bets at the next crisis.
Also, pause a while: could the `fat cats’ somehow have declawed Obama? With Citi striking a deal with the government to payback $20.5 billion of its bailout funds, and others set to follow suit, would Obama continue to have much sway over any of the bankers?
Doesn’t this then lend credence to the theory that central banks are trying to manipulate the price of gold?
What happens when the gold reserves of the United States that have not been fully and independently audited for half a century, start unraveling?
What then?
Course change
Surely, gold is set to change course. There are enough reasons: because the system is breaking, because pressures are brought to bear using the same broken tools to fix the problems, because mountains of new money was doled out to failed bankers, because the crisis is ongoing and because the world economies are not responding to stimulus packages.
Don’t forget: A rising gold price says to the world that “something is rotten in the state of…”. (put your own region here)
But, if you think that the Fed got it wrong or that the dollar looks to be on shaky ground, dream on of a golden dawn. Bask in the warm yellow glow of the sun.
Don’t bother about the dark clouds gathering on the horizon.
Tags: bankers, citigroup, gold bugs, gold futures, gold investing, gold investors, gold miners, gold news, Gold prices, gold projects, gold stock, greenback, Obama, paper money, physical gold, precious metals
December 15th, 2009 at 4:47 am
Do you think your intuition has been honed to the point where you feel like a master psychologist? There is more to the push and pull of gold price than a mere dollar or US ka Obama for that matter.
Gold markets are effected by a myriad of factors, far too complex to deal with in a small venue, such as this comment.
Who would have predicted that oil would hit US$67.00 a barrel. Who would predict that gold will hit US$1,000 an ounce? seems to me that investing in gold now is a very wise investment right now. to buy gold call ys
December 15th, 2009 at 12:38 pm
Dumbest article I’ve read all year. Dream on.