Gold - Is the Party Over?
Grandich Letter Special Alert Thu May 12, 2005

Peter Grandich
Thursday, May 12, 2005
10:00 a.m. EDT
Gold: $423.40

Like it or not, the term "bear market" would be a fair description of what has taken place in the junior resource market for several months. In fact, if you consider the sharp decline in junior resource stocks versus how well metal prices were doing at the time, the juniors were performing every bit as poorly as they were in the depths of sub-$300 gold.

While this was taking place, the price of gold still managed to more than hold its own. However, it now faces perhaps its biggest test since it bottomed several years ago. Bearish sentiment has become far more "en vogue." Outside of the scattering of the always-bullish bulls, most players in the gold market have lost much of the bullish enthusiasm they once had.

It's fair to say that the single biggest "perceived" driving force for gold was its inverse relationship to the U.S. dollar. As noted in my April 26, 2005, Blue Chip & Income Report alert, I noted that the U.S. Dollar Index was forming a potential bullish formation that could lead to critical resistance in the 86-area being taken out to the upside. If so, it could lead to a much stronger rise. One would expect this to be very negative to gold and a real test to the longevity of the gold bull market that has been in place for several years.

Therefore, the natural stance would now be to join the bearish crowd. But before you do, let me remind you that the social, political, economic and religious problems facing the U.S. are unlike anything it has had to deal with in its entire history. The problems that were stated during the U.S. dollar's decline have not gone away (as much as the "Don't Worry, Be Happy" crowd on Wall Street would like you to believe). In fact, I believe they're more acute today than ever before.

Gold may surprise many, even if it must go through an initial washout on the heels of the U.S. dollar rising above key resistance. The supply-versus-demand scenario has never been better. The very near-term ability for Chinese investors to buy gold easily is going to impact the supply/demand scenario in a powerful way. But perhaps most importantly, the fact that Americans have been robbing Peter to pay Paul and Peter is tapped out is going to override any perceived good news for the American economy.

The reports of gold's demise is not just pre-mature, but can end up setting the foundation we need to finally get to: the $500 level.

Peter Grandich
Grandich Publications
P.O. Box 243
Perrineville, NJ 08535
phone: 732-642-3992
email: Peter@Grandich.com

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