So, OPEC finally figured out what the western world has been doing to them. Oil producers have been swapping oil for green pieces of paper. Suddenly, they discovered the intrinsic value of those green pieces of paper, the market value of the paper and ink. Only governments can take paper, cover it with ink, and make it worthless. OPEC is trying to determine what to do now with all that green paper arriving by cargo ship load daily, as their banks vaults are already filled with the stuff. Might they switch to pricing in Euros? Imagine the consequences of that to North America. The price of oil is rising for two reasons, oil in short supply and dollar depreciating. Gold may be the only insurance against appreciating oil and depreciating dollars.
The Gold market rallied as it should to the interest rate decisions of the Federal Reserve. Some uncertainty did exist as markets could not answer an important question. Were Bailout Boys, Bernanke and Mishkin, intentionally devaluing dollar or simply inept? In any event, the collapse of the Bernanke dollar sent $Gold to a high above $840 in first week in November. At that level, $Gold was clearly over bought and a dearth of buyers developed. U.S. dollar had became over sold, and a transitory period of calm was due. As that happened, $Gold extended the correction to almost $70. Will a buy signal develop in $Gold this week? Will correction extend beyond that signal, as it did in 2006 when funds and momentum traders bulled Gold and then fled? Will unwinding of leverage and portfolio risk by fund managers push $Gold further down than we expect? With Gold in a structural bull market, over sold periods are important as they provide an opportunity to buy low, and hold for higher.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html.