Gold Is Showing Strength!

March 7, 2010 Market Updates No Comments

Gold is showing strength against the dollar and the government spin. If you ignore gold, it is at your peril!

Gold Is Showing Strength!

This is going to be a quick report today because my dance card has been full this weekend. My apologies, but sometimes that’s the way it goes.

Gold had a really good week despite the dollars strong run up of late and the outstanding jobs report, (pun intended). Harry Reid commented that the jobs loss of 36,000 is “really good” What planet is this guy from? Apparently Comrade Reid has lost all touch with what America is all about! America would be better off if Senator Reid was one of the 36,000 that lost their jobs!

I guess Reid was unaware that the U6 number, which includes workers that have given up looking for jobs and those working part time that are trying to find full time jobs rose to 16.8% from 16.5% the previous month.

One little post script on the jobs numbers. The only reason that the 36,00o was not higher was because of the 15,00o government workers hired for the census. Why does government grow when noting else is? Or maybe that was phrased incorrectly. Nothing else is growing because the government is!

I am getting the feeling that the people in the gold pit are beginning to wake up to what is going on. Gold’s strength in the face of orchestrated selling, as was the case today after the jobs report was released, is a sign of the changing times in the gold market.

gold 30 day o usd Gold Is Showing Strength!

Gold Hanging Tough!

The next resistance is just above $1,150 and with any luck we may see that fall in the coming week. After $1,150 it’s clear sailing till we hit $1,200 where I am sure a concerted effort will be launched to push gold back.

The dollar appears to be locked in a trading range after its latest run up. Sideways action looks to be the mode the dollar is in for a while. It doesn’t have the strength to bust through 81 and there appears to be no will to push it into the 70′s. The outlook for the dollar is not good as this next article points out.

China ready to end dollar peg

The head of China’s central bank has given the strongest signal yet that the country will move away from pegging its currency to the dollar, but he said any changes would be gradual.

By Garry White
Published: 5:31PM GMT 06 Mar 2010

When China eventually abandons the peg, the country will have to manage its exit strategy carefully. If the central bank allows a gradual appreciation of its currency, which would be the best strategy for its exporters, there could be an inflow of funds from speculators betting on further appreciation. However, a one-off revaluation could deal a severe blow to the country’s manufacturing sector.

The US dollar is still an extremely important currency, playing a key role in international trade, cross-border capital flows, direct investment as well as in determining whether we can smoothly overcome the global financial crisis, Mr Zhou said.

The relative value of the dollar is important to China, as the country is the world’s largest holder of US government debt. According to data form the US Treasury Department, China held $894.8bn (£591bn) of US Treasury securities at the end of December. Roughly two-thirds of the country’s reserves are believed to be in dollars and dollar-denominated assets such as gold.

Zhou Xiaochuan, governor of the People's Bank of China Photo: AP

At the annual session of the legislative National People’s Congress in Beijing, Zhou Xiaochuan, governor of the People’s Bank of China, said that the days of the special yuan policy were numbered. He described the dollar peg as a â€œtemporary response to the global financial crisis, but gave no timescale for any change in policy. The currency has been pegged at about 6.83 yuan per dollar since July 2008.

Many economists expect China to allow the yuan to appreciate slightly this year, but the cautious tone by Mr Zhou means that any change may not happen for some time. He said that the central bank would maintain the basic stability of the currency. So, despite the fact that the Chinese economy grew by 10.7pc in the fourth quarter of last year, the country’s loose monetary policy looks set to continue.

If we are to exit from irregular policies and return to ordinary economic policies, we must be extremely prudent about our choice of timing, Mr Zhou said. â€œThis also includes the [yuan] exchange rate policy.

China’s currency policy has been subject of fierce debate, particularly in the US and Europe, with the country’s central bank accused of keeping the yuan artificially low to promote a domestic exports boom. An artificially lower currency makes the country’s goods and services more competitive, leaving other exporters at a disadvantage. Jim O’Neil, Goldman Sachs chief economist, thinks the Chinese should allow their currency to appreciate by as much as 5pc.

In recent week President Obama has been vocal on the issue of the artificially low currency. China and its currency policies are impeding the re-balancing [of the global economy] that’s necessary, Mr Obama told Bloomberg last month. My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy.

Gold on the other hand, is generating buying above the $1,130 level. The fact that it is also trading above all the major moving averages is extremely bullish. Gold is on the rise and the dollar is cresting before it recedes.

Bottom line: Hold your gold stocks and buy on weakness. Anyone who believes the spin that is coming out of the government on this economy is going too be swept away as the dollar recedes. Gold is showing strength, ignore it at your peril!

Til next time, good luck and good trading!