Gold stabilizing

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.

Posted in Gold | Print | No Comments »