Gold Poised for New Highs
Despite skepticism, fundamentals remain strong.
Any move through $920 (spot) will likely trigger a mad dash of short covering from anyone unlucky enough to have shorted the metal last week at an all-time high. My own near-term target remains $1000+.
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I'd also note that the gold shares (based on today's sharp move up) appear to be finally realizing that gold's move up to all-time highs is not just a weak dollar phenomenon after seeing it rally yesterday in the face of the strong move up in the dollar index in the wake of the ECB appearing to indicate that it was now ready to join the global printathon started by the US Fed and sacrifice inflation-fighting in favor of trying to stimulate growth.
There was never a doubt that all the G10 nations would eventually turn to the printing press in the wake of the US housing bust and the US recession that is already underway, and that's why gold is rallying in all these confetti currencies. What's the result going to be? Stagflation!
As for the gold shares, they have lagged the metal over the past few weeks based on this "disbelief" and sent the XAU/Gold ratio back to its August nadir well below 0.20. The action is not as a result of a panic in stocks but due to simple disbelief by the market. They will come to believe soon enough though! As I've noted before and again touched on over the prior three days, buying gold shares anytime the XAU/Gold ratio has fallen below 0.20 over the past 25 years has been a slamdunk, and today's move to the upside once again confirms that trend. Anyone buying the gold shares over the past three days is now "in the money" when looking at all the major gold indices.
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As far as the shares lagging the metal like this, we saw something very similar to this action when gold crossed $500 back in late 2005. The shares lagged and lagged and then suddenly "caught up" as people realized that "something was different" in gold. The same will happen here now as people watch gold blow back through its $936.92 all-time high and onward to over $1000.
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