Oil v. Gold

Is Oil about to roll over, or primed to go higher? Check out the chart for the price of oil (in blue, as represented by the USO ETF) compared to that of gold (in yellow, as represented by the GLD ETF). Gold sure fell out of favor quickly, ending a tight price correlation that has held strong for a while there.

gold

What do you think we'll see first, $800/oz. or $1000/oz. for the price of gold? Personally I believe the latter. Here's an article telling of the dramatic reaction the market had when it tested the $890 range last week.
"...gold counter-attacked..."In the three trading days since Feb. 5, it reversed and stormed upward by $U.S. 32.50, closing (spot future basis) on Friday, Feb.8 $918.40 ... the gold price fell below both 10 and 20-day moving averages this week only to turn right around and move above them again by the end of the week. The shorter term moving average remains above its longer term counterpart."

Why? Close observers of gold futures' noted that "open interest"...rose as gold was going down and fell (sharply) as it recovered. This suggests short sellers being routed."

Go(ld), Go(ld), Go(ld)!!!

There are a lot of gold haters out there, but it's easy to love it when you've been playin' it since the low $400's in '05. I especially enjoy it because it really does go to show you that when it comes to speculating even the "experts" get it wrong. It's been on a tear, and it seems like it finally has the respect a non-credit-backed asset deserves. Now that it has garnered said respect it seems like it can generate even more momentum into the $900's. It has put on $100/oz. in only a month's time. However, adjusted for inflation the price of gold now, compared to 1980, isn't nearly as impressive.

Still...

...a gold bug

Gold Bugs

Still bearish on Gold? Most were calling a top in the $700's. Now that we're consolidating in the $800's the Gold bears are giving their "gold-is-no-longer-an-inflation-hedge" shtick yet again. Obviously you've never had to pay the dowry of your future daughter-in-law. My father-in-law, while in Nepal, provided the dowry for his son's wife which comprised a number of gold jewelry items. Had he been in that situation now he'd be paying 3.5 times the price he paid then. While gold might be considered a hedge from inflation in some cultures, in others (India, Nepal, China, etc.) it represents tradition, reverence, commitment, and, above all, wealth.
The bottom line is supply and demand. More than half of the world's population are in the Asian nations. Regardless of price the demand for gold in China alone rose 24% in the third quarter. Gold jewelry demand rose 24%, while investment gold demand on China's mainland rose a whopping 43% in the third quarter. Meanwhile, with Indian household incomes on the rise "the World Gold Council (WGC) says gold sales in India will rise by 10%-15% this year alone. India's gold imports between January and August were up 86.5% from a year ago."
With that being said, increasing the production of a mining company is a "tedious process of identifying a target gold deposit, exploring it, developing it and building the infrastructure to mine it. And this runs in parallel with the constant pressure of procuring, permitting, funding and then producing the gold profitably. This entire process for a gold mine large enough for the markets to notice can take ten years or more and cost hundreds of millions of dollars."
So, with a growing gold-loving population that increasingly puts pressure on demand, and a slowing production output that isn't keeping pace with said demand, what's the logical conclusion? Higher prices of course. But who's to say how much higher we can expect the price of gold to go really. Adjusted for inflation we're only at a level of about 1/2 of what the price was back in 1980. And it's sure to be a bumpy ride no matter which direction the price of gold decides to take. It may not be too late to stockpile those Krugerrands or step into the futures ring.

Gold $808.50/ounce

Gold hitting a 27-year high doesn't seem to be peaking the interest of the gold bugs. From Mark Hulbert; "the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters followed by the Hulbert Financial Digest. As of Tuesday night, the HGNSI stood at 51.8%" the all-time high being 90%. "This past February, when gold bullion was trading between $650 and $660, the HGNSI stood at 75%. So, over an eight-month period in which bullion has risen nearly 20%, the HGNSI has decreased by some 23 percentage points."

"That's a remarkable divergence for two data series that normally rise and fall more or less in tandem. And it bodes well for the gold market over the next several weeks."

Gold

Gold had a big move today, and so did the stocks that specialize in it. Up over $13 today to settle at $704.60/ounce.