Gold Newsletter - Breaking Away
Source: Resource Stock Digest (2/23/09)
"The very structure of today's gold market is unlike any before."
Right on the opening in Hong Kong, the rush was on. Gold began surging higher in Asia, and the rally gained steam in London and New York.
So what was behind today's big rally in gold?
Undoubtedly, the spike was partly fueled by short-covering from the large commercials that had been increasing their bets against higher prices.
But at its core, everything you saw in today's market, from near-panicked demand for the dollar and gold to a sell-off in stocks and base metals, resulted from a rush to safe havens.
Investors were worried for a number of well-founded reasons. First, a Moody's report came out warning that the growing economic crisis in Eastern Europe was putting great stress on European banks. This didn't play well in Moscow, as Russian stocks plummeted, forcing the two major exchanges to halt trading. And reports I'm hearing indicate that Ireland is teetering on the brink of financial collapse, with some government paper going "no bid" today.
Adding to gold's allure was a Reuters interview with the deputy governor of the Russian Central Bank, Alexi Ulyukayev, in which he noted that "Gold's share (in reserves) has increased. We are aiming to continue this tendency this year, we are buying gold." Evidently, this policy has been adding considerably to the global demand for the metal recently.
Throw in President Obama's signing of the pork-ridden stimulus bill - plus the need for Uncle Sam to print up at least $2 trillion to fund this bill, the upcoming housing bill and the bank rescues - and it's obvious why gold is soaring.
The very structure of today's gold market is unlike any before. The gold and silver ETFs have opened up a massive new market for these metals, and allowed broad public participation to a degree never possible before.
It seems as if investors have already assumed that $1,000 gold is baked into the cake - which likely means that the metal will have to take one or two good cracks at that benchmark before successfully clearing it.