Gold Short term bear over - gold detaching from CRB?

Chris Laird
www.PrudentSquirrel.com
Nov 9, 2006

Well, last week was one busy week for gold and for me! Recently, I had been tracking the gold short term bear, and I am glad to say that is over. Lots of reasons for this.

It was certainly never my goal to give gold bulls a hard time, and now I am glad to be talking about gold's long term bull.

There are several reasons for me to be able to say that the gold short term bear is over. First, let's look at some action of last week:

• Gold rose about $20, despite the fact that the USD strengthened that week - gold bullish.
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• Gold rose last week in spite of continued oil weakness too - gold bullish.
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• Gold rose last week in spite of supposed good US unemployment numbers at 4.4% - gold bullish.
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• Gold rose last week because there were bad US economic statistics, the ISM index barely over a recessionary below 50 reading, at just over 51. - Gold Bullish
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• Gold rose last week when US productivity growth came out at zero. That is inflationary and recessionary. -Gold Bullish
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• Gold had risen the prior week when Greenspan said central banks don't want the USD that much any more... Gold Bullish
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• There are reports out that there will be a physical excess in 07 of bullion due to some reduced jewelry buying at these prices, and things like supposedly Central Banks may not add to their bullion holdings, among other things. That is Gold Bearish. But I foresee enough fund buying to easily overcome the projected excess of about 150 or more tons in 07.
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• Iran and Iraq situations are both deteriorating, that is very Gold Bullish. Iran is right in the middle of the Prophet 2 war exercises in the Gulf, right in the teeth of an unprecedented gigantic US naval operation in the Gulf - very nervous situation. - Very Gold oil Bullish.
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• Gold appears to be detaching from the CRB which had been dragging gold down. If the US goes into recession, the CRB would continue down, but if gold detaches because of financial flight to safety and geopolitical flight to safety, then gold will rise regardless. If gold stays detached from the CRB, that is gold bullish.

Overall assessment: Very gold bullish, and the end of the short term gold bear I have been writing about recently. There may be some profit taking however. I expect gold to stay above 610 in this latest week.

Flight to safety to buttress gold

As I said in my previous public article, Post US Election Anti Investment Pussyfooting, I am very concerned about both the deteriorating situation in Iraq and Iran. I expect the fear premium to return to both oil and gold in coming months. This is one major reason I decided to pull my December forecast of $500 to $550 gold, as well as gold appearing to detach from the CRB which had been dragging it down. I notified subscribers of this change - that the short term gold bear is over - on Nov 2, 06.

Fund buying into rallies last week

Last week, when gold shot up $20, funds were buying into the rally after gold first passed $610, and then $620. Up to last week, funds had been selling into gold rallies for roughly two months. That change, funds now buying into rallies, is also a reason why I say the short term gold bear of the last several months is over.

Jewelry buying lower, and Jewelry demand lower at these prices

But, fund buying can easily replace that. India had about a 30-40% drop in jewelry tonnage demand because of higher gold prices, and also a trend there of gold fund investing and stock investing this year. People are more interested in India than before in paper investments. India will always have high jewelry demand, but there is a trend of money there moving into paper gold, and stocks, instead of such focus on bullion type purchases such as jewelry. The reduced jewelry tonnage demand is one reason for the forecasts out, by Virtual Metals, among others, for a gold bullion surplus of about 150 tons in 07.

Gold detaching from CRB?

Here is a chart that shows that gold has just diverged some from the CRB. In previous weeks/months, a dropping CRB had dragged gold down with it. If gold stays detached from the CRB, and there is flight to financial and political safety going forward, gold can rise even if the CRB drops going into 07. Also, even if the USD were to stay in its present range of 80 to 87 on the USDX.

US mid term elections

The Recent democratic victory in congress may help reduce US spending excesses (to a small degree). That will be interpreted by gold investors as slightly gold bearish. Overall, however, I foresee gold being strong into months ahead for the reasons outlined above.

The gold short term bear is over.

The Prudent Squirrel Newsletter is Chris Laird's macro economic gold newsletter. It is one of the few that focuses completely on macro economic factors affecting gold. Stop by and have a look.

Chris Laird
Editor in Chief
website: www.PrudentSquirrel.com
email: editor@PrudentSquirrel.com

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