Bearing Up

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Gold typically thrives on bad news. The doom-and-gloom metal loves it when the dollar dips, crude climbs and political tensions build. “Historically, gold has done well in periods of turmoil," notes Stewart Flerlage, managing principal at NuWave Investment Corp., a $500 million hedge fund in New York that invests in commodities.

Gold typically thrives on bad news. The doom-and-gloom metal loves it when the dollar dips, crude climbs and political tensions build. “Historically, gold has done well in periods of turmoil," notes Stewart Flerlage, managing principal at NuWave Investment Corp., a $500 million hedge fund in New York that invests in commodities. “Gold tends to do better when things are financially unstable."

“The smart money is piling into gold before something transpires in Iran,'' said Ralph Preston, a senior analyst at Heritage West Financial Inc. in San Diego. “We're seeing a bout of safe-haven buying."

Instability is hardly in short supply these days and before the market crash, gold responded with enthusiasm. Gold hit a nine-month high of $689 an ounce on February 26. That doesn’t mean there won’t be profit taking, pullbacks and volatility along the way. In J. Taylor Gold & Technology Stocks (February 24), Roger Wiegand wrote that he anticipated a minor pullback but he was “not expecting much of a price retreat in gold and several fundamentals are telling us to buy. Gold has been trading in a very wide channel from 630 to 680 and the close today on the shorter term peaked above the top channel line. Expect some profit taking …after that, there should be more buying ahead with new resistance at $690, $720, $728 and $740 our forecast spring high price.”

In the aftermath of the Dow’s 416-point plunge on February 27th, gold is reacting badly to the bad news. According to Reuters, “gold fell below $660 an ounce for the first time since Feb. 21 as shaky global share prices prompted investors to reduce positions in commodities.” Reuters also noted that “traders said gold might receive support from firm energy prices. U.S. crude oil futures hit a 2007 high yesterday on tightening fuel supplies in the U.S.” Gold prices fell as low as $635.10 before rebounding somewhat early on March 5th.

Bloomberg reported that gold “headed for its biggest weekly drop since January as declines in equity markets spurred selling by investors.” …“When markets move like this some people reduce their exposure across the board and that's irrespective of what the view may be on gold,'' said Philip Klapwijk, chairman of London- based research company GFMS Ltd. “Once the markets stabilize, the fact that equities may be considered less of a sure thing will be good for gold."

Despite the dramatic dips in the price of gold, the underlying conditions that spur gold upward remain unchanged. In the March issue of The Aden Forecast, the Aden sisters, Pamela and Mary Anne, listed six key factors supporting the continued rise of gold which include: spending and money; inflation; the weak U.S. dollar; China’s growth; and geopolitical tensions. They point out that U.S. debts are “so huge it’s hard to imagine. Putting it into perspective, it would take $1 million each day for 189,000 years to pay off the U.S. debt and liabilities. Yet the government keeps spending money it doesn’t have.” Summing up the gloomy global picture, the Aden sisters assert that “the gold bull market is not anywhere near maturity.”

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