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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (23619)	12/20/2004 7:03:25 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

1) rate cut in UK Wouldn't that tend to weaken the pound a little and push up gold prices as measured in pounds? So what? Gold is primarily tied to the US$ 2) intervention in the US$ by Europe and Japan Doesn't intervention often backfire and lead to speculative distrust of a currency? Ultimately you can not beat the trend but look at the reaction to gold and silver on that last US$ rally. Hell it was not even a rally as it was undone today. Devasting plunge, particularly in silver. The fact that gold is tied purely to the US$ is not a good thing IMO. 3) Bush raises taxes (ups limit on SS taxes) Maybe if I think about it more I can see the connection between U. S. tax rates and the price of gold. Don't be silly. Tax hikes and spending cuts will mean less foreign borrowing and lend support to the US$ and weaken gold. 4) Consumer spending falls off the cliff Isn't it possible people might think about putting money in hard assets instead of more Chinese-made clothing and gadgets? Almost anything is possible. Is it likely? NO, not yet. Ultimately, yes. They are already doing it in houses and the late comers will probably get crucified. Gold will have its time. Not just yet IMO. 5) technical rally in the US$ when a breakout fails This assumes that the $USD is the exact inverse of gold. Isn't it possible that gold buying could take place independently of the value of the dollar as other currecnies weaken against the dollar? Again that is NOT what the charts or the action suggests. Nor do I think it is likely. Is it POSSIBLE? Yes me winning the lottery is possible too. 6) just too damn many US$ bears Again, gold is not necessarily the inverse of the dollar. True but there is a huge positive correlation. 7) SS reform just plain dies and along with it a $2 to $6 trillion price tag. The Social Security reform suggested by Bush involves the equities markets, which are enjoying a (temporary) reassurance in the idea that SS will go into equities. If SS dies it will save $2T to $6T in stupidity costs. That is pretty big. Again, look at it from a US$ standpoint, stocks in this case are irrelevant IMO. 8) actual spending cuts in congress Are these likely to occur and also have effects on the U. S. economy in the next few months? No. But they are possible ========================================================== My own view is that the combinations of things that affect the price of gold are too complicated to make short term predictions very reliable. Longer term, gold seems almost the only internationally recognized store of value, with all fiat currencies serving as media of exchange, mainly, and will probably rise in value for that reason. But I also think that at some point ($500 an ounce? $750?) the price of gold will stimulate a huge increase in production that will eventually cap its price. I will be mildly surprised if gold drops back below $400, and not surprised if it rises above $500 in the next few months. I think more money is to be made, probably, by investing in energy. ========================================================= The combinations of things affecting gold right now are quite easy to sum up IMO. 1) The US$ 2) Sentiment 3) Terrorism That's about it. Nice and easy. Are there more? Probably, but those are the main ones. The public still has not caught on to the gold story. The US$ is the main driver right now. Shorter term COT reports show short term speculation potential. As for energy: probably...... with one huge caveat ... some sort of cheap alternative energy supply comes to the forefront. Australia has some things they are working on but I forget the exact nature. One of those comes into play and oil and oil stocks get wrecked. I do not see a cheap supply of gold coming on ever. Mish