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Stay with gold/PMs in 07 - Co USD DebasementChris Laird I had written to my newsletter readers last Sunday that I expected gold to stay above 600 this week, even though not a few excellent analysts were forecasting gold to get to 580 and below - even 550 before physical buying from India and Asia and others appeared- these analysts were concerned about the commodity weakness in general. Well, physical buying appeared at below 610 this time. True, the last time the PM jewelry buyers stepped in amidst a breaking gold price was at the 550's and also just shy of 600 in the last months. However, I made a case to my newsletter readers that the overriding macro situation with the USD and the Middle East would prevail, and gold would not share the fate of the overall commodity sector this week. So far, even with oil dropping, and base metals dropping, gold steadied at 613 so far. I expect my prognostication that gold will stay above 600 this week to hold. We have seen perhaps the end of gold's recent weakness of recent weeks. In fact, I predicted that gold would stay above 600 this year, and will be exceeding $640 at some point, though that level has proved to be a short term peak- funds selling every time it reached that level. I expect gold to test 700 this year too. Also, I want to repeat that when I say gold, I mean the whole precious metal sector. They all have their own dynamics, but I mean these in general along with gold. In short, the argument that commodity weakness - oil and base metals - would drag gold down with them, is not proving to take gold all the way down with them. Gold has not suffered percent wise as badly as base metals, and is even ignoring oil's recent drops this week.. and even some USD strength this week too! Gold is not acting directly inverse now to oil or the CRB directly, following that down. What I believe is happening is a view I have presented before that is very gold bullish. The US trade partners are keeping the USD above 80 on the USDX, (US dollar index currency basket that heavily weights the Euro). These foreign central banks are willing to co debase with the USD, and that means that gold will find a pan currency bullish force in 07. I expect this to continue. In fact, I am coming to believe that the USD and pan currency devaluation to support the USD are the overriding gold forces in 07- along with continuing Mid east strife - hence I expect gold to stay well above 600 this year, and probably get well above 650. As I have said, the short term gold bear is over. The breaking of the correlation of gold and oil and gold and base metals is also supportive of this thesis. Here is a chart of the USD and gold, and oil and gold recently:   Right here, I want to comment that the view that the commodity complex will take gold down with it, looks like it may be wrong - both oil dropping and the CRB and gold frequently being inverse - means that gold has a separate dynamic - and I believe it is pan currency debasement - IE our trade partners are co debasing with the USD to keep their currencies undervalued. That is overriding the normal correlation of gold and the CRB and gold and oil.  Overall, for these reasons, I have been telling subscribers to stay with gold for 07. The Chinese are supporting the USD by debasing with it - they hold their Yuan/RMB too low, Japan is doing the same with the Yen, and the EU is complaining that the Euro is too strong over 1.30 USD - for the same reasons. This dynamic means they are all co debasing with the USD in 07. They will continue to do this as long as the US consumer can continue to keep buying. So far, they have been able to do that. This is Euro, and Yen bearish in 07 and for the Yuan/RMB in 07. The Yuan/RMB might strengthen some in 07, But not near as much as it might- but the Euro and the Yen will tend to stay down from here. They will not raise interest rates if the US cuts interest rates. The whole dynamic here is about keeping the USD above 80 on the USDX. This is all very gold bullish - and gold will resist the CRB and oil drops in the near future. I can't say it will completely overcome them, but gold will resist significantly. The Prudent Squirrel newsletter is Chris Laird's macro economic gold newsletter. The newsletter focuses on macro and political trends that affect the gold and precious metals markets. It is 44 issues a year, a very robust schedule. It is a big picture analysis of the PM sector that looks months ahead. The research is from that stand point. Stop by and have a look. Chris Laird 321gold |
