GOLD THOUGHTS: Gold is the one universal money, even more so than the dollar ever was. Massive trade deficit of United States is spewing out of vast quantities of green paper onto the world's markets. That action can only cause the global purchasing power of U.S. dollar to further depreciate over time. Investors around continue to swap those green pieces of paper for Gold. They have no choice. Supply of green dollars is growing faster than the global pile of shiny Gold. In that situation the only possibility is for the price of Gold to rise in dollar terms.
Last Friday, as is often the case, New York was able to push the price of Gold down sharply. With investors around the world already home for the weekend such is not an unusual event. Global investors returned on Monday and began to correct Friday's action. Gold, in dollars, returned to above $650. For that reason the charts continue to paint a lovely picture. Nothing but blue sky above current prices. US$650 is slowly becoming a floor.
Lateral price action is slowly dissipating the over bought condition that had existed. Such resting builds the fuel for the next rally. Above Gold's current price is nothing but sunshine, not clouds of over head resistance to retard its advance. Charts on Gold in other national monies also add to the encouraging picture. Euro denominated Gold is holding above €500, an important area of resistance. Movement above that level is an indication of strength of global demand for Gold. Canadian $Gold is just shy of a cycle high, encouraging investors there to move into Gold.
The G-7 meeting may be interesting. Many central banks acknowledge they own too many dollars, but market analysts will continue to dismiss this serious situation. Bankers will say, "I won't sell if you won't sell." Reply, "Trust me, I won't sell." A cartel of trusting soles these central bankers will claim to be. At the same time China will be bashed for not revaluing upward the renminbi, while the Japanese will get a pass for their weak yen. The G-7 will continue a policy of benign neglect toward the dollar's situation. Inevitably, the massive currency mismatch being created by the carry trade will force devaluation of the dollar, and push Gold higher. Time and governments work in Gold's favor.
Historically, however, putting Gold into portfolios was made difficult by the need to use the physical commodity. With the creation of Gold ETFs that difficulty has been removed. A good idea would be research the many precious metals related ETFs. GDX, the Gold stock ETF on the Amex, may be of interest to some.
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive a trial subscription send a note to Ned at email@example.com.