This wonderful rally in Gold, largely driven by money chasing momentum, is generating a great deal of bravado. Coming sale of a significant amount of Gold by the IMF is scoffed at. Why all of a sudden did the G-7 agree to it? Is more to come? At the same time, US$ is feeling the wrath of momentum money as its value is trashed. "More Money" Misken at the Federal Reserve thinks only of benefits from lower U.S. interest rates, while ignoring the damage. Will the Federal Reserve continue to ignore value of dollar and inflationary impact of oil and food prices trickling through the economy? At some level for the U.S. dollar and inflation, the Federal Reserve may be forced to acknowledge its manifest errors. Dollar sellers are "spitting" in the eyes of world's monetary authorities. Be wary of cornered animals. Traders may be pushing Gold and Silver to unsustainable short-term levels.
The Gold stocks, represented by the GDM, in this week's chart have not joined fully in the party. That index is barely above the October level, and down from its most recent high. The reluctance of Gold stock investors to buy during this Gold rally should not be ignored. They tend to be value investors, and their gray hair is experience not a fashion statement. The difference between the performance of $Gold and the Gold stocks is a measure of the speculative exuberance now running through the Gold market. Fund mangers, being desperate for performance, are chasing Gold and Silver as all of their other ideas continue to perform miserably. The $900 level is rapidly becoming critical support. A breach of that level is likely to give Gold investors again an opportunity to buy. When the funds decide to depart, and they will, they may leave some damage behind.
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive copies of recent reports, send an email to email@example.com. But note, we do not respond to email spam prevention programs.