One other gold observation -- the dollar and the stock market have moved in lock step the past 2 months. So once the stock market breaks, the dollar will almost certainly follow and gold will rally. The real question is how much? Leonard Kaplan is not optimistic about a big rally anytime soon:
"The recent trend toward consolidation in the gold mining industry may have a profound effect upon the
level of forward selling, or hedging, in the future. As some of the industry abstains from such activities,
while other producers are very aggressive in the use of such derivatives, the winners of any consolidation
of the industry may indeed dictate future hedging levels. Given this uncertainty, and given the
historically poor prices of gold sold forward presently, this only makes forecasting much more
uncertain. But, all in all, I would wager that the level of hedging would decline in the market as USD
interest rates continue to fall.
The real difficulty in achieving higher gold prices longer term lies strictly with its attraction as an
investment. As jewelry demand is highly elastic (higher prices of jewelry instantly create lower demand),
it will never be able to get gold moving in any significant manner. It is only the investment interest that
has the potential to create higher gold prices. And, the trends are very poor for the expectation of such.
The World Gold Council announced that investment interest in gold accounted for only 7% of total
demand from 1993 to 2000. And readers of this commentary know quite well that investment or "safe
haven" buying of gold after the terrorist attacks of September 11th were anything but robust. They were
shamefully low. Luckily, we are now at excellent support levels for gold, where retail and wholesale
demand should re-emerge in size thereby supporting prices at current levels or perhaps a bit lower.
The one bright spot in gold demand is China, where the partial deregulation of gold saw demand surge
9% in the third quarter of the year to almost 50 tons. Many analysts predict great things from this nation
in terms of demand, but I remain apprehensive." |
