First with Financial Comment from Arabia

Is the sheikh right to sell as gold tops $1,200?

with one comment

Gold sailed past the $1,200 mark for the first time this week without much ado. It is the favorite currency of choice as the dollar falls and the stock market rally continues.

Yet gold prices move in steps of around $200 and that is what we have just seen: a decisive shift past $1,000 and then a $200 step up in a few months.

Sheikh selling

Perhaps that is why normally reliable source tells me one local UAE sheikh is currently negotiating a huge gold sale. Locking in profits after a big step up looks wise, although for a sale of this size a discount of around five per cent is apparently still necessary.

Arabs are traders by nature but this still looks a questionable decision. For how much of a haircut is the gold price likely to take in a market setback?

Dr. Marc Faber says gold will not fall below $1,000 again. Sell now at a discount and you might well find it difficult to buy in any quantity before the gold price bounces back.

On the other hand, sheikhs also have advisers, and there is a very good case for taking a profit on gold at $1,200.

First, this does look like a short-term spike as any chartist would confirm. Secondly, the global stock market rally is well overdue for a correction, and as last autumn demonstrated that would also involve a gold sell-off – indeed we saw this happen again only last Friday.

Third, currency analysts all over the world are starting to talk about a dollar recovery as the upcoming ‘surprise’ for 2010. Dollar strength would only come in a big market sell-off and flight to the perceived safe haven of the US dollar, and that would be initially gold negative.

Sideways drift

However, while a correction in the gold price is probably inevitable after its recent $200 step up, the precedent is actually then for a year or two moving sideways, not for some kind of a price collapse.

Is this not more likely to be the fate of gold now? A sharp correction along with global financial markets, then a recovery and a drift sidewards until serious debt problems begin to emerge in the major economies?

Then it would be a question of investors abandoning T-bonds for gold, and the price would rocket, and not by $200 this time but by a multiple to prices way beyond anything seen today. That is why I would stay in buy and hold, and not cash in now.


Written by Peter Cooper

December 2, 2009 at 8:38 am

One Response

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  1. Somewhere I read that the USA National debt is going to increase by about $ 19,000,000,000,000 during the next decade. What will happen to the value of the dollar when that happens? It will probably be worth a whole lot less than it is now. Since virtually everyone that I have heard and read, has said that the US dollar will remain the world reserve currency for a long time, how could the price of things of real value like gold, oil, copper, farmland, etc. not increase in price? There will never be a gold glut.
    The central bankers will continue to run the printing presses in a vain attempt to avoid taking the bitter medicine of inevitable depression which is an essential part of capitalism. It can’t work. The debts created need to be cleansed thru massive bankruptcies. The longer they delay by shoveling free money into the economy, the worse the collapse will be. When that happens, you will wish that you owned some gold because, unlike paper assets, gold will never be worthless.

    Bill Simpson in Slidell

    December 4, 2009 at 7:18 am

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