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Gold Rising

December 11, 2008 Inflation, Market Updates 1 Comment

Due to computer difficulties this will be short and combine the the actions of the markets on Dec. 10 and 11.

Gold futures lurched up today Dec. 11, above $800. Rising oil prices and weakness in the U.S. dollar get the credit in the media for today’s rise in the price of gold. Is it oil and the dollar, or are people finally beginning to realize that the dollar is being devalued intentionally? Time will tell on that issue.

Gold for February delivery rose $34.60 to end at $808.80 an ounce on the New York Mercantile Exchange. During the day gold was as high as $813.80 an ounce. This was gold’s highest closing level since Nov. 28.

“The bounce in oil prices is likely lending support, as is continuing robust physical demand internationally,” said Mark O’Byrne, executive director of Gold & Silver Investments Ltd.

Gold gained $4.90 Tuesday to end at $774.20 an ounce on the New York Mercantile Exchange.

Thursday Dec.11 sees gold up again by $18.50 to $828.10. Once again oil and the dollar are pointed to as providing the impetus for this move. I still have the same gut reaction that I felt with yesterday’s move. There may be more here than meets the eye. This could be a temporary blip up due to over sold conditions, or it could be sideline cash beginning to move into gold.

“A weaker dollar and firmer crude prices is helping sentiment, as is news that an interim loan for the car companies was passed last night by a slim margin in the House,” said Edward Meir, an analyst at MF Global, in a note.

“Despite the better tone we are seeing in metals, more robust and sustainable moves to the upside will be hard to justify,” Meir said. “With practically all countries exhibiting markedly lower growth rates or no growth, the demand component has been seriously compromised.”

Another take on this move tends to contradict Meir’s comments on the global growth rates. The markets may be pricing in the effects of the many stimulus packages being put on the table around the world. Generally, markets tend to reflect what is going to occur 6 to 12 months in the future. My feeling is that the market is seeing the impact of the Chinese and US infrastructure spending as it will effect the metals complex. Throw in the rumblings regarding OPEC cuts in oil production, a hefty dose of future inflation due to “quantitative easing”, the dollar beginning it’s swan dive to new lows and you have the basis for a sustained upward move in gold and the metals complex.

John Nadler summed it all up with his comments on www.kitco.com this morning.

“The Saudis cut oil output by nearly 300,000 barrels per day and
preached $75 as ‘fair value’ for black gold. If only people consumed
enough of the stuff even at current prices…The Swiss, Taiwanese, and
Korean central banks eased interest rates as the sprint to zero
gathered steam. The Treasury market took on bubble-like characteristics
as more and more people are chanting Will Rogers’ 1930′s clever mantra
on the return of capital. Not exactly an environment conducive to taking on risk. But, hey, speculators have different bloodrunning through their veins. Colored deep green.”