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Bema, Coeur D''Alene, and Royal Gold replace Placer Dome in XAU
2:47p ET Monday, February 6, 2006
Dear Friend of GATA and Gold:
Here's more acknowledgement of the Cheuvreau report,
if again underplayed and grudging, this time from
TheStreet.com, but happily accompanied by comments
from some of GATA's favorite people -- Brien Lundin
of Gold Newsletter, Peter Grandich of the Grandich
Letter, and GoldMoney's James Turk, editor of the
Freemarket Gold & Money Report.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Gold Bugs Eye $600, $850 and Far Beyond
By Nick Godt
Monday, February 6, 2006
Nervous jitters about Iran's nuclear ambitions haven't only inflated
crude oil prices. Gold, often seen as a safe haven in times of
uncertainty, reached 25-year highs last week and remained on the
In recent action, gold for April delivery was gaining $2 to $573.80
per ounce. Among metal-mining stock indices, the Amex Gold Bugs Index
was recently up 2.34%, led by big gains in AngloGold, Harmony Gold,
and Gold Fields.
The CBOE Gold Index was up 2% and the Philadelphia Gold and Silver
Index was up 2.3%.
Barrick Gold was up 1.7% after saying it would raise its stake in
Placer Dome to 94%. Barrick offered to acquire Placer Dome in
November 2005. Broad indices, meanwhile, were mixed as oil prices
rose and investors fret that the Federal Reserve may have to lift
interest rates for longer than expected. The Dow Jones Industrial
Average was recently up 1.76 point, or 0.02%, at 10,795. The S&P 500
index was up 0.07% at 1264 while the Nasdaq Composite was down 0.18%
Just like crude (which was recently gaining 38 cents to $65.75 per
barrel) gold's latest surge came after Iran said over the weekend it
would resume uranium enrichment activities even as its case is being
referred to the United Nations Security Council.
But unlike crude, gold isn't likely to pull back if those tensions
"Gold is in a bull market," says Brien Lundin, gold analyst at
Jefferson Financial, and editor of Gold Newsletter. "That means it
responds positively to bullish news as investors are looking for
excuses to buy."
For proof, there's no need to look further than the breakdown of a
once-traditional inversion relationship between gold, which is priced
in dollars, and the U.S. currency. A rising dollar used to depress
gold prices, as it took less dollars to buy the same amount of gold.
But, as it did all of last year, gold's latest push has occurred even
as the dollar has been strengthening.
But as investors are looking for excuses to buy, a drop in the dollar
might well give another leg up for gold. Should tensions with Iran
ease, the greenback could get hit ahead of Friday's readings on the
U.S. budget and trade deficits.
Still, after easily passing through the psychologically key $500
level in November and recovering from a mid-December slump, gold has
been on a seemingly unstoppable upward trend. Most analysts currently
view it as overbought. A correction, several say, should be expected
This, however, is what gives Bernie Schaeffer, head of Schaeffer's
Investment Research, confidence that gold still has room to run.
"This overwhelming sense of skepticism, this all-out assumption that
the end of this rally is near, is exactly why the metal and its
relevant stock indices still have upside potential, at least for the
short term," Schaeffer wrote in a research note.
Schaeffer's contrarian investment strategy proposes that the
investing masses may be right while a trend is unfolding, but they
are likely wrong about when the trend begins and when it ends. "In
this situation, I think the gold skeptics are calling an end to the
trend a bit too early," Schaeffer says.
At the other extreme, James Turk, founder of GoldMoney.com, believes
that gold might test $850 per ounce before the end of March. At a
recent meeting in TheStreet.com's office, Turk said that after
passing the key $500 level, gold has attracted investors who were
previously under- or un-invested in the metal.
In addition, Middle Eastern investors tend to rush into gold when
they are flush with cash, as they are currently, while the tensions
with Iran, the ongoing war in Iraq and the recent victory of Hamas,
are all fueling the short-term trend.
Several analysts, including Lundin and Peter Grandich, editor of The
Grandich Letter, believe that gold will likely try to test the $600
before an expected correction occurs.
"I think [gold] is obviously overbought, and I do expect a correction
at some point," Lundin says. "But one thing about gold is that it has
repeatedly made prognosticators look foolish."
In the short term, Lundin says that large short positions -- or bets
that the price of gold would fall -- have been punished since the
start of the year, which should guarantee further upside for the
price of bullion. As gold prices refuse to drop significantly, the
owners of those positions (most likely hedge funds) are increasingly
forced to buy gold to cover their bets, creating a self-reinforcing
mechanism called a "short squeeze."
But before or shortly after $600 is reached, the "smart money" may
start anticipating a seasonal pullback in gold prices, which
typically occurs between March and May, Lundin says.
That's all in the short term, of course. Lundin's conservative
estimate for this year is that the $650 will easily be reached. But
he doesn't bar the idea that speculative fever may push it to test
its historic highs around $850, which were last touched in January
1980. Adjusted for inflation, this would equate to more than $2,000
in current dollar terms.
"Should the nominal high of $850 be touched, then the next target
would be $2,200," Lundin says.
That's also the call of French bank Credit Agricole Cheuvreux, which
sees the possibility of a spike to $2,000, without providing a time
frame, because of an upcoming short squeeze.
In making the call, Cheuvreux analyst Paul Mylchreest revisits a
conspiracy theory -- favored by hardcore gold bugs -- that central
banks have roughly 10,000-15,000 tons of gold less than their
officially reported reserves of 31,000 tons. Much of that disappeared
gold was loaned secretly over the years to bring down the price of
gold in times of crises, Mylchreest says. The banks' counterparties
meanwhile have to replace the gold they had borrowed and this is
causing a giant short squeeze, the theory goes.
Whether the theory is true or not, the $2,000-per-ounce call brings
to mind Goldman Sachs' famous call that crude oil might experience
a "super-spike" that would take it to $100 per barrel. It wasn't long
after the call before crude oil prices experienced a correction.
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