Can Gold Continue to Rally?
posted on: February 04, 2008 | about stocks: DGL / GLD / IAU Print Email I have been bullish on gold for more than four years, and have written scores of articles on this view over the past 2 1/2 years of blogging. Today, reluctantly, I am selling the last of my gold stocks. It seems that something has changed.
The fed cut 125 basis points in 9 days, and the market expects another 25-50 basis point cut in March. Oil and ag commodities remain elevated, and inflation reports remain well above Bernanke’s targeted levels. So gold should be exploding, right?
The problem is that its not. Gold keeps nudging new highs, but it lacks the strength one would expect under these circumstances.
Spot gold, as of yesterday’s close, only moved a few percentage points off the fed cuts [note: gold did rise about $9-10 dollars overnight, but has given up most of that gain as of the writing. I will post an updated chart over the weekend]. Yes, it is at fresh highs, but momentum appears to be fading.
At the same time, despite all of the talk of an “American peso,” the U.S. dollar continues to trade above its 2007 low. That’s right, a 125 (and potentially 175) basis point reduction in rates was not enough to push the dollar to new lows. Unless and until a new low is notched, we must take that as a sign of dollar strength, no matter what the headlines say.
This is not a long-term call. Rather, it is a recognition that the market may have shifted, and that as a trader I must step back to assess that shift. If gold shows a little mojo, I will restore my positions. But for now, they are closed and I took a small fade in silver futures (a trade I will cut ruthlessly if it goes against me).
DISCLOSURE: No positions in gold. Short silver futures (ZIH08). |
