Monday, February 1, 2010

$980 or $1200 Gold?

Jon Nadler of Kitco argues the bear case:

"On the technical side of things, as was expected, the break below the $1,015 (he means $1,115) price marker elicited a fairly heavy subsequent decline in values. At this time, near-term support has held up at the $1,073-1,075 levels, despite such support being fairly moderate in terms of bargain hunting. Thus, a deeper decline towards the $1,055 and ultimately the $980 level now appears more plausible, even if we can expect a bounce from current levels in upcoming sessions. Overhead resistance appears to be in the $1,095-1,097 area, and the metal needs to rise to above the $1,117 mark to get the bulls excited again."

Also of Kitco, Frank Holmes argues:

We believe that the secular bull market for commodities and natural resources stocks that began in 2000 is far from over. The International Monetary Fund believes that commodity prices will rise further in 2010 as a result of global economic recovery and escalating demand from fast-growing emerging markets.

"The expanding middle class in China, Brazil and the other biggest emerging economies want more of the material goods taken for granted in the developed world. They are laying claim to a bigger share of the world’s commodities, many of which could face future supply constraints.

"History shows that commodity supercycles typically last 20 to 25 years, though not without periods of volatility. If the current cycle follows the historic pattern, we could be just starting the second half of a prolonged upward trend."

"To favor the bear case long term you need to believe in the competence of the Fed and the US Congress. Also, you need to overlook the long term trend of dollar depreciation over the past century. To favor the bull case short term you need to overlook the power of the central banks and Wall Street and the dollar mythology.

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