Gold and Uncertainty?

I hope everyone had a wonderful Christmas.  I know that I did.

Gold and uncertainty are beginning to take center stage as world events are chancing the direction of the markets as i write this.  Politics and world events can have dramatic effects on your investments.  that is why it is so important to be informed, so you can see trends developing before others do.

Friday was an interesting day for gold with the Israelis retaliating for the random rocket strikes from radical Hamas.  Gold ended up $21.78 at $868.70 as the fighting escalated.

Claudia Carpenter (Bloomberg) had this to say this morning.

Gold rose to a two-month high in London as fighting in the Middle East and higher oil prices spurred demand for the metal as a haven and a hedge against inflation. The morning fixing used by miners to sell metal gained the most since at least 1984.

Crude-oil futures increased on speculation about supply disruptions in the Middle East, the world’s largest producing region, after Israeli air strikes in the Gaza Strip. On Dec. 26, a U.K. holiday, gold jumped 2.6 percent, the most in two weeks, as Palestinian militants launched a rocket attack on Israel after a truce expired Dec. 19.

There is potential for more conflict to come and therefore its had an impact on gold and oil, said Simon Weeks, a London-based managing director at ScotiaMocatta, the metal-trading unit of Canada’s Bank of Nova Scotia. This is not bearish news.

Gold for immediate delivery jumped $14, or 1.6 percent, to $883.30 an ounce as of 12:52 p.m. in London and earlier gained to $890.49, the highest since Oct. 10. The fixing at 10:30 a.m. local time in London jumped $44.25, or 5.3 percent, to $881 an ounce. There were no price fixings on Dec. 25 and Dec. 26 because of public holidays.

Futures for February delivery advanced $13.20, or 1.5 percent, to $884.40 in electronic trading on the Comex division of the New York Mercantile Exchange. Oil climbed as much as 12 percent.

Gold may climb to $935 an ounce by the end of next week on demand in the Middle East for the metal as a haven, and from investors who consider gold a better alternative to Treasuries, according to James Moore, an analyst at TheBullionDesk.com in London. The yield on 10-year notes was 2.14 percent, according to BGCantor Market Data.

This situation is a prime example of an outside trigger that can change gold’s direction in a heartbeat.  This continuing conflict moves gold to the upside and it may well be the event that puts the floor in oil and sends it upward.

India and Pakistan is another trigger that may go off at any time, changing the conversation immediately from “deflation” to war.  These events and ones that we have not considered at this time will keep the “V” in volatility for years to come.  It is imperative that we recognize these threats and that we trade accordingly in this environment.

This morning, the DOW is up 5 at 8,521, the NAS is down 7 at 1,523 and gold is trading up $11.60 at $880.30.  So much for my hope that the market would stay in a comfortable trading range until the first week of 2009.  The lack of volume due to the absence of traders because of the Holidays, leaves some of gold’s gains in question.  The odds of this Middle East flareup deteriorating into something far worse that will push gold higher increase with every passing day.  When the traders are back in full force on January 2 we will begin to see the full ramifications of this latest edition of the Middle East conflict.

Royal Gold’s performance is really strong considering the events that have occurred in the markets since July of this year.  Heck, this chart is super strong considering any circumstances. I have been taking profits on the way up here because I know how quickly things can reverse in gold.  If 20% to 30% profit is available to me I am going to take it.  Nothing goes straight up and another opportunity will arise to buy this stock at a lower price in the future.  I like to keep a portion of the shares of winning stocks in my portfolio for the unforeseen moon shot that would temporarily put repurchase out of the question.  That is the “blue sky” portion of my portfolio.  When all of my original money is off the table I tend to push the limit further when it is the “house’s” money.

Goldcorp was severely over sold since July and is making a nice comeback.  There is a lot of upside potential on this one.  I am looking for another small pullback to pick up some more.

In general, I am leery of putting to much credence into these low volume holiday moves. I am not, however, adverse to taking profits on these days if I have hit my sell goals.  The true direction of this market will be determined through the month January, 2009 when we see the full participation of traders and the effects of random triggers on the market.

As always, I am not recommending stocks for purchase or sell, I am simply giving examples with stocks that I own, or like.  It is up to you to do your own due diligence.  Research the companies and call the management before you make a decision.

Till next time, good luck and good trading!

More Gold Market Analysis:

• World Events and Gold
• Unrest and Uncertainty Reign!
• Gold Lower on Speculation
• Buy Gold on Dips
• New Record Gold Price!