31/08/2008 by Philinje.

Looks like gold is stabilizing above $820. The dollar rally is petering out.

I am planning to jump back in this week. If gold holds up toward end of week, it should be safe. If it starts heading down again, like below 800, time to wait a bit, or buy some and see if cheaper prices are still to come.

Some of the stats now show that foreign countries bought huge amounts of US Treasuries in recent weeks to prop up the dollar, hence the rally. This is the kind of intervention that happened from 2002 to 2005. Gold still went up hugely then, so not everything is dependent on the dollar.

The paper traders really got pushed around during the weak season and panicked. Silver is particularly oversold so that is in a way safer. But be careful with silver, it’s super volatile.

Physical demand is huge right now. It’s actually difficult to buy physical gold or silver. Which says a lot about how cheap the paper price is.

The stocks I’m focusing on now are Agnico Eagle, Royal Gold, Eldorado, Kinross and Randgold. Aurizon is a junior that seems safe (sold off execessively but is a good company). I’ve read some info about Goldcorp that makes me want to steer clear of that one for now.

Agnico Eagle, or AEM, has been extremely volatile, so it’s buy and hold with no margin or get it on a downswing. The others are less volatile and Royal and Eldorado have been extremely stable. Those two have weathered the downturn better than most and seem to be holding at normal levels.

These are not recommendations, just my personal insights.

Traders get back from Labor Day weekend on Tuesday then volume will start to pick up, and hit full swing by the week of Sep 8. Gold needs to get above 850, which was major support before, and stay there, possibly this week. After that, here is a rough schedule based on behavior in recent years:

First peak, early November, then some decline until New Year’s.

Then new rallies in January and March.

The run-up into May was cut short this year, as noted earlier, but often the exuberant, parabolic peak happens in May to June. This year the price went straight up in Jan to March, not from exuberance but from panic in the general markets. And it dropped in a straight line after. We got our bounce to 960 but the authorities figured it was a good time to juice up the the dollar while crude oil was experiencing its long-awaited correction.

It’s always easier to push around paper/electronic markets when volume is light because traders are away on holiday. But the more a market is pushed away from its natural equilibrium, the harder it swings back, like a rubber band.

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23/08/2008 by Philinje.

Everyone wonders if the dollar has turned around. The answer long term is no way. Short term, however, we may see another surge in the dollar.

The levels to watch for are 80 on the USDX and 1.38 in the USD/Euro. They are not the same thing, and one or neither may be hit. The 80 level in the US Dollar Index is a huge resistance level. So far, it gotten to 77.5 or so, and it may not get any higher. But 80 is going to be the absolute end of the rise because every country around the world will sell their US Treasuries like mad at that level.

The Euro is a tough call. 1.38 is one forecast in the FX world, but I’ve also seen 1.36 and 1.4. I personally think 1.4 is in the cards, maybe this week. We hit 1.46 this past Tuesday after getting almost that low last Friday.

What this means for gold is the question. Gold and gold stocks do NOT have to be hit as hard as the Euro. We saw a major wash-out in mining shares a week ago, and they have bumped up toward end of this week. They could go lower but a lot of selling pressure has been spent. A new batch of hedge funds went out of business a week ago, including one in Australia that apparently barfed up 150,000 silver contracts.

Gold in the meantime is bumping into seasonal demand and investors returning from holidays. There are widespread shortages of physical gold because everyone is trying to buy gold coins, bullion, whatever. This shortage is real and documented. It feels like investors are smelling something really bad hitting the US economy pretty soon. The past few weeks have been pretty convincing in terms of newsflow that things are getting worse in the US.

That’s why the dollar rally was surprising, but hey, they always try verbal intervention at critical times, in this case a well-timed comment from Trichet about the ECB not raising rates, and often there is trading manipulation. But FX markets are difficult to manipulate through money because the amounts involved are so huge. In this case there seems to have been quite an effort at manipulation, which might be some indication of how severe things will be soon.

Where we are at present is some lingering suspicion that the dollar may continue to move higher, so it probably will. Watch for those levels this coming week.

But then September starts and gold will start to stengthen. If a financial crisis hits, gold will move up more quickly. If not, it may range trade for a while, probably above $800. But by mid to end of Spetember the rally will start in earnest.

It is possible in some circumstances that gold will stay flat or even rise if the dollar rises. But the chances of the dollar rising for more than the next few weeks are very slim.

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