Gold Bulls Will Not Lie Down FN Arena News - September 14 2006
By Greg Peel
Am I sounding like a broken record? It's not my fault. Don't shoot the messenger. I've been waiting for someone to turn around and say it's all over for gold, but that someone is very hard to find. Consensus remains that gold is going to at least US$700/oz.
Let's start with Tower Commodities' Pradeep Unni in Mumbai (as reported in the Resource Investor):
"From the highs of $730.50 on May 12 to $594.60 on Sep 11, gold prices have crashed almost 18%. Though much of this correction was expected, the slower recovery and renewed selling after every rally is what's surprising the traders."
But Unni notes that markets always seem bullish at the top and bearish at the bottom. We know what has brought gold down:
(1) Lack of physical (jewellery) buying; (2) European central bank selling; (3) A falling oil price; (4) Apparent tempering of relations with Iran; (4) And not forgetting the end of Israel-Lebanon (and maybe Syria, and Iran) hostilities.
Unni points out that traditionally the boom time for physical demand is October-December so, he says, buyers with a 6-12 month horizon should start buying now.
Unni notes further that a slowing global economy, and particularly a slowing US economy, means a devaluation of global assets that leaves gold as the obvious investment choice. China holds only 1.3% of its reserves in gold, while most countries hold 3-5%. Now is a good time for China to buy.
Never has it been so easy to buy gold, with everything from ETFs to the new gold contract on the Dubai exchange – right in the zone where most of gold's physical buyers hail from.
And technically, notes Unni, were we actually to break US$579/oz the bottom will be found between US$564-550/oz. This will be the bottom for the year. If physical buying kicks in and the dollar weakens then May levels should be retested by the first quarter, 2007.
Now over to James Turk of GoldMoney:
"It is significant to note that the Dollar Index barely rallied during this gold rout...This observation is important because it suggests [the] mini-freefall was gold-specific. In other words, it was factors unique to gold that caused its price to drop. There was no simultaneous rush into the dollar. Therefore was someone 'piling on' to drive gold lower?"
Actually, Turk said that after the May correction, but he dug the comment up again because he suggests the circumstances are exactly the same. His rhetorical question implies central banks (officially or otherwise) were the sellers. Now he says:
"So far gold is down five days in a row, basis the New York closing price. A bounce can be expected at any time. After the June low in the $540s, gold climbed all the way back to $650. We'll see if history repeats. I expect it will because gold [is] simply experiencing a bull market correction."
Every broker in the FN Arena database is long term bullish gold. A contrarian would say that the more people keep saying gold will up then surely it must go down. It is heartening thus to hear Dennis Gartman's view (Gartman was previously very bullish):
"The only hope for the long-standing, now deeply wounded gold bulls is that support at $575 holds. We have our doubts for the long term; but we do not doubt that it shall on this rush to the downside, if only because the market is now so severely over-sold that a bounce is inevitable... or at very least reasonable. However, strength is to be sold, not weakness bought. Any rally back toward $595 -605 will be met with considerable selling from longs who have no choice but to liquidate as they can... from bears who wish to sell rallies...and from central banks who've got literally tonnes of gold yet to sell, and now feel as if they must do so, for they've missed the chance to sell a hundred dollars/ ounce higher".
Remember that the European central banks have until September 24 to sell the remainder of their quotas of tonnes of gold. If they don't sell, that's very bullish. If they do sell well, at least that's out of the way.
