Wednesday, March 08, 2006

Gold and terror

Never buy gold because of terror / pandemics … Fears, if you are subscribed to doom theories then the US dollar will serve you better.
I try to keep my political and religious opinions out of this bog as much as I can for the reason that gold is the money of ALL common people. However, I must say again that it is silly to think that a small minority, fanatic group – so called terrorist or self destructing regimes in specific countries can control the price of gold (the forex of nature). More then this, it is very possible to think that terror attacks have just the opposite affect on the price of gold. That is: terror = declining price of gold. Like wise growth and economic prosperity will probably bring higher gold prices.
Gold is first of all a chemical element in the periodic table and that a scientific fact. Since gold like any other commodity offer nothing but price appreciation or relatively independent store of value – It is very hard to buy it when it price decline and 77% of the market comments are bearish.

If I have to guess, what are the reasons for the sharp decline that brought the price of gold back to its 2005 high level?
This is what my instinct tells me: The gold market needed a good washout in order to get rid of the short term virtual gold speculators which trade somewhat false paper promises based on geo-politics, fears and other psychology related opinions.
Technically the four month trend lines broke down and nominally you can almost buy gold now at last year price, isn't it wonderful?

Click on the chart below to enlarge:



Meaningless to the gold market , meaningful for Ghana:
Ghana 2005 gold output up 20%
Accra - Gold production in Ghana rose 20% last year to 2.15 million ounces as established companies raised production and new mines came on line, figures from the Ghana chamber of mines showed on Wednesday.
Gold producers' revenues from Ghana, Africa's second biggest gold producer after South Africa, rose 24% to $903.9m in the same year, the chamber said, reflecting a rise in prices of the precious metal to near 25-year highs.

6 comments:

Tim said...

No offense, but economic growth and prosperity does not bring high gold prices. During the dot com boom of the late 90's till around 2001 gold was at very, very low levels. It was between $250-280 per troy ounce. Economic depressions and social uncertainty make gold prices go up, like now where the price of gold is in the $500 range. Terror = high gold prices. Not lower.

real1 said...

Not necessarily, Gold has "life" of is own, obviously the reason you did not understand my post is the fact that you see the gold market from a US centric point of view. The global economy is changing and while the US economy is still leading in many aspects, the Asian continent is enjoying impressive growth and that alone will cause (much?)higher physical gold demand

To sum it up , your data is correct but partial, hence your conclusion might be totally wrong . The post was designed to offer a different perspective which could certainly not be dismissed scientifically.

Anonymous said...

The decline in gold could also be attributed to its seasonal price cycles.

http://www.kitco.com/ind/Wiegand/printerfriendly/mar032006p.html

The test is whether gold will fall through the USD535 resistance point. If yes, a slide down to USD520-500 is possible.

I am aiming for USD520 as a buying opportunity in end-March.

Anonymous said...

With regards to the impact of a flu pandemic on gold prices, the mainstream view seems to be that it will push up support for gold.

http://www.financialsense.com/editorials/droke/2006/0306.html

http://www.hsbc.com.au/information/research/pdf/2006/anzweekly/OZ060109.pdf

I have found the above reasoning somewhat at odds with the fundamentals driving gold's demand - ie. from the rapidly growing prosperity of India and China.

In the worst case scenario, a flu pandemic will trigger a global recession. If pple lose jobs, how will they have the money to invest in gold?

But will the pandemic be a 1-2 years brake to gold's Everest climb, or will it be a fatal 10-20 years long twilight.

If the former, it would be an opportunity to buy low and await the resurgent gold bull.

Anonymous said...

Btw, the cap in gold prices uptrend could have ben partly due to the ECB's gold sales in the last 2 weeks.

http://www.ecb.int/press/pr/wfs/2006/html/fs060228.en.html

http://www.ecb.int/press/pr/wfs/2006/html/fs060307.en.html

Tim said...

Real1, Ok I can see where you're coming from. Good point.

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