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Gold InfluencesChris Laird Previously, I had presented some macro economic reasons for gold's price drops/ weakness:
Major gold analyst banks have pushed back their predictions of $700 gold on the calendar, from Dec 06 to early 07. USD and interest rates The Fed has been talking about either holding interest rates steady into Jan 07, or even raising. Last week 5 Fed governors stated their concerns about US inflationary pressures. That caused the USD to strengthen some, and gold dropped as there was previously an expectation that the Fed would lower interest rates soon in a weakening US economy and housing market. The USD is strengthening, and is now at about 86 -87 in the USDX, and oil is at about $57 to $59. I had suspected the USD would rally into Jan 07 weeks ago. That is happening. Indian and Asian jewelry India is just now seeing significant jewelry buying for their wedding and holiday season. This is gold bullish normally, but has not been enough to overcome speculative unwinding into any gold rallies. There is a lot more of this unwinding waiting to happen as well. I find it hard to understand how much this particular issue of speculative unwinding is being underestimated by the gold community. Last month there was a $5 billion out flow from gold paper by speculators. There is still a great deal of this kind of position to unwind should that be the desire of funds. If seasonal jewelry buying at a normally bullish part of the year is failing to rally gold much, what do you think is going to happen after that is finished? Oil Last week, there was speculation that OPEC would be able to implement a 1 million BPD cut. Oil rose to briefly threaten $60, but fell back again this week. There are indications that OPEC is having trouble agreeing to who will cut what. Saudi stated recently, they will not lower production to their Asian markets, as they are afraid they will lose market share to others, like Russia, who has major contracts with China for instance already. In this week's addition of the PS newsletter, I had predicted that oil would fail to hold over $60 this week for reasons such as this. CRB The CRB has broken down significantly. IF this is not a major breakdown, and is just a 'correction' then I am Donald Duck. The CRB is reflecting falling demand and speculative unwinding. There is more of this to come as well. There is a LOT more. The latest speculative unwinding made only a small dent in speculative froth. It is estimated that funds have put way over $100 billion into the commodities complex and a mere 10 or 15 billion outflow so far is a drop in the bucket. Last month, there was a 5 billion dollar Fund outflow from gold and 5 to 10 billion outflow from oil. Hamilton had an interesting article about the new CRB with many good points. One was that the CRB is heavily weighted for oil and energy, so will follow oil and energy in lockstep. I think the CRB weight for oil is justified, considering how important oil is for transportation, manufacturing, and just about everything. To think that the CRB fall recently is due mainly to oil is over simplistic. The other components in the CRB fell as well for very good reasons, not the least of which is speculative unwinding amidst a very changed world macro environment since the interest rate hikes here and world wide this year. I do not believe the US economy is as healthy as the 'reports' coming out from our government are saying.  Overall, these factors are why gold has seen difficulty getting back over $600. My macro economic approach to the PM markets has been very effective this year. The latest Prudent Squirrel newsletter (last Sunday) is available as a sample for you to take a look at. In it, I had forecast gold to rise briefly to between $590 and $600 and probably not break $600. I also predicted that oil would probably not break $60. To access the sample newsletter, go to the main page and click on the flashing 'Newsletter Sample' button. Chris Laird The Prudent Squirrel Newsletter is a big picture gold and economic commentary. Stop by and have a look. 321gold Inc |
