Goodbye, ''strong dollar policy'' -- traders say U.S. is happy to see it fall

Section:

Unsustainable Gold on Brink of Crash,
US Metals Guru Peter Grandich Says

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, May 15, 2006

http://www.telegraph.co.uk/money/main.jhtml?
xml=/money/2006/05/15/cngold15.xml

An American metals guru has warned that gold could crash within
hours or days after a speculative "blowoff" last week to a 26-year
high of $727.75 an ounce.

Peter Grandich, publisher of the closely-watched Grandich Letter,
told The Daily Telegraph he expected gold to plummet up to $150 an
ounce after reaching the most extreme levels of speculative excess
he had ever seen.

"I think there will be a very short, sharp correction of 10 to 15
percent, in the worst case reaching a floor of around $575 an
ounce," he said.

"In the long-term I'm still very bullish on gold because I think the
US dollar is dying and I don't see what can replace it. But the
latest rise is quite simply unsustainable."

In a special alert to subscribers, he said gold was showing the
classic symptoms of late-stage "exhaustion," with technical
indicators flashing danger signs.

Gold is now 37 percent above its 200-day moving average, the
sharpest spike since the explosive -- and fleeting -- rally of 1980.

Mr Grandich believes gold will rally to record highs later in the
year after touching bottom in the summer, but first it must burn off
the current froth. He recommends smaller mining stocks, believing
they will soon have their day of "speculative frenzy."

"Once we see a complete breakdown of the dollar, then all those
crazy predictions we hear of gold reaching $2,000 or even $3,000 an
ounce could become realistic," he said.

He said the trigger would be a fall below 80 in the US dollar index,
a basket of currencies that ended Friday at 83.83. This would be
equivalent to about $1.34 to the euro or $1.98 to the pound.

Mr Grandich said copper prices had reached lunatic levels, a view
buttressed by reports over the past week that traditional users of
copper are shutting down production rather than paying inflated
premiums.

Platts Commodity News said the current price of copper above $8,500
a tonne -- up 170pc over the past year -- had become meaningless
since physical buyers were remaining aloof. It said the market
was "falling apart."

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