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Weldon's Money Monitor: Special Focus - The "Saturation Factor" Gold


...there has NOT been ANY fundamental erosion in the secular macro-dynamic.


Editor's note: The following column was written yesterday by Prof. Weldon.

According to our well-soured bullion-buddy in London, "bottom pickers" have made their first appearance of the week amid the continued year-end liquidation driven plunge in Gold price. Indeed, London awoke to a second straight day of locked limit down quotes 'left-over' from TOCOM, where it took a mere 4 million ounces of gold to drive prices down the daily limit.

Spillover selling hit London on the opening and $500 was in reach, when resting, scale-down buy orders were uncovered emanating from European and U.S. Fund-linked 'bottom-pickers.'

I asked, " Is this the first time you've seen 'real buying' this week ? "

Answer: "Oh, yes, it's the first buying we've seen since we traded $540."

I reply, "So, it's the first buying this week ??"

Answer: "Oh yeah, it was just a couple of days ago, wasn't it, that we were trading $540 when everyone wanted to buy it 'cause it was going straight to $800? Yeah, that was just a couple of days ago."

However, while our buddy, one of the most respected bullion dealers in all of Europe-UK, did note the scale down buy orders, he also noted MORE 'sell-stops' sitting below $500.

A second call from the Money Monitor was placed this morning, to a good buddy in the hedge-fund brokerage arena, a friend who has long shared our secular bullishness on bullion. He immediately turned the tables and asked me where I would be looking to buy back into the gold market.

And thus, we examine that question in today's Money Monitor Special Focus.

We hear of Gold Mutual Fund redemptions and liquidations, which would explain WHY the paper-golds have 'lagged' bullion itself, particularly as applies to the spike in gold denominated in currencies other than the USD. Indeed, Gold mutual fund redemptions reflect the SAME 'saturation factor' we have been spotlighting since Monday's Pride Goeth Before the Fall Money Monitor call for 'protection' and caution and, thus, strongly suggests that there has NOT been ANY fundamental erosion in the secular macro-dynamic.

Again, as we have also been highlighting all week, IF the Fed is indeed signaling that the Fed Funds rate might be close to a peak, then the long-term macro-bull case for bullion is ONLY ENHANCED.

Thus, we do LOOK to see where re-entry might be prudent, taking a purely technical approach and using what is fast becoming a most popular trading-investment vehicle for many of our readers, the GLD, or Gold Trust.

Frankly, the technical 'read' is pretty straight forward, with a clear-cut convergence of med-term technical indicators within the price band defined in the chart below between $48.45 and $46.30.

Evidence the following input:

  • 100-Day EXP Moving Average - $48.43
  • November Spike-Reversal Low - $47.85
  • 50% Fibonacci Retracement - $47.70
  • October High - $47.70
  • 200-Day EXP Moving Average - $46.85
  • 61% Fibonacci Retracement - $46.30

We remain bullish on bullion from a long-term secular, macro-monetary perspective, noting that Brazil slashed rates again yesterday and sold Real in an attempt to squelch the strength of their currency amid hyper-paper wealth reflation in the Bovespa, which surged to another new all-time high.

Still, we maintain our 'protection,' taken out on Monday morning, and wait for an opportunity to 're-enter' the market, perhaps on a move in the GLD into the $48-$46 zone, or the $480-$460 gold equivalent.

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