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Dollar, Equities Put Pressure on Gold


However, the positive long-term fundamentals haven't changed.

Legendary investor Jim Rogers says he can't wait for the International Monetary Fund to sell some of its gold holdings. Should that cause the price of gold to dip, Rogers says he will buy some more.

In fact, Rogers says he buys gold whenever he thinks about it. "If it goes down I'll buy some more, and if it goes up I'll buy some more," Rogers said in a CNBC interview. "I periodically buy some gold. I don't have a method to it. I just buy it."

The IMF is the world's third largest owner of gold reserves. The number-one holder of gold is the United States, followed by Deutsche Bundesbank.

In Precious Metals Becoming a Risky Business, I discussed the new Central Bank Gold Agreement signed recently by 18 countries, limiting the amount of gold they can sell each year. They agreed to sell no more than a combined 400 metric tons of the yellow metal each year through September 2014. For another perspective, see Three Reasons to Short Gold Now.

The agreements were originally introduced to give the gold market stability, in the knowledge that sales by central bank would take place in a regulated framework, removing the wild card that gold would get dumped ad hoc on the market.

But that still leaves the IMF, which isn't a signatory. The US Congress passed legislation in June that allows the American representative to the IMF to agree to the planned sale of some 400 metric tons of gold to finance aid to poor countries. (The IMF holds 3,217 metric tons.)

Last week, I reported that the signatories to the agreement sold 73% less gold in the first 6 months of the year when compared to the previous year. It was the lowest level since 1944 -- definitely a bullish sign.

I think the market has already discounted the planned IMF sale; it won't cause any disruption to prices. It's completely possible that one of the other countries -- China, for example -- eager to beef up its reserves, might snap up the entire amount, as they've already indicated that they'd like to do.

Getting back to Jim Rogers, he said he buys gold whenever he thinks of it. However, smaller investors need to time trades with more caution. Therefore, let's turn to the charts for some clues.


Recently, relative to gold, silver has been looking very strong. Gold is more or less where it was a month ago, whereas silver is about $1 higher. Since I've said that silver tends to outperform gold during the final stages of an up leg, this recent tendency might cause some nervousness. Before I move on to the silver-to-gold ratio analysis, let's take a second look at the silver chart.

Besides silver's recent outperformance, and the fact that the $14 level has turned from resistance into a support level, there's one more thing to consider.

I'm referring to the bottom/top cycles present since the beginning of 2009. I've marked them on the chart with red vertical lines. My research shows that every time this particular period passed, silver either put a bottom or a top (or was close to doing so). This signal isn't precise as far as the exact day/price is concerned, but it's reliable in indicating the general tendency.
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No positions in stocks mentioned.
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