Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

*** Gold related post ***

Here's an interesting take on yesterday's gold swoon.


Metals Update

By Peter Grandich
April 13, 2004

Gold’s sharp sell-off this morning has caused many in the gold bug camp to think the party is now over. The thinking goes like this:

1- Economic activity in the U.S. increases.
2- This leads to higher U.S. interest rates.
3- This leads to stronger U.S. dollar.
4- This is bad for gold.
5- Party over.

If life itself was only as easy!

Try this scenario:

1- Increased economic activity only accelerates the shrinking supply of many commodities.
2- Higher interest rates lead to lower bond prices.
3- This in-turn leads to higher mortgage rates.
4- This leads to a domino effect among the many Americans who have been robbing Peter to Pay Paul via cheap credit.
5- Party only begins for gold as an alternative to U.S dollar, as many realize the dollar is not worth the paper it’s printed on.

Since bottoming in 2001, gold has moved up in stages, all of which had sharp sell-offs within them. These sell-offs have merely washed out the excessive optimism at the time. This one shouldn’t be any different. The record number of speculative bets in the futures market was an accident waiting to happen. Keep in mind the last wash out was down to the $390 area. I don’t think we’ll come close to that this time around.

Don’t be surprised to see gold rebound as the week and month progresses and the $450 area hit before summer. I won’t.

***

http://www.kitco.com/ind/Grandich/apr132004.html