The price of crude having held on to its long term support of $88 per barrel, except for a brief period recently, it resumed its move toward its eventual target of $125 per barrel. Tracking the strengthening crude and a weakening USD globally (against all major currencies) gold shot into limelight and crossing $965 an ounce. Not having retraced from there it is still remaining strong.
Crude continues its march, and Ben Bernanke in all likely hood is ready for another round of rate cuts to fuel his economy, which is in the grips of a probabale stagflation.
Is it time we got out of the equity markets and entered gold atleast now? A few indicators may help us make a decision albeit a speculative one at that.
1. To insulate their economies against a dipping dollar some of the Asian countries, the Russians & other petro dollar countries converted some of their reserves into Euro. The Euro Zone saw an inflow of around 200 billion Euros in the first half of 2007.
2. Vladimir Putin has advised the Russian Central Bank to increase gold reserve portion by 10% and other countries may follow.
3. The Asian economies and Petro $ countries are sitting on $6.6 trillion of reserves. A small shift from them in to gold will have telling effect. Will the shift happen?
4. The strengthening rupee in the previous year increased the domestic demand for gold by 72% and India is the largest market for gold. Will the demand be sustained?
5. Demand from Gold ETF are on the rise, as also the demand from Middle East and China too.
6. The supply side of Gold is shrinking as also the demand, as the price rises. The Indian demand for gold fell by around 62% in the 4th quarter of 2007.
7. The global supply is also shrinking due to power problems in China & South Africa and also because the mines are yielding less.
8. Gold is unique in that, almost 90% of the mined gold is still in existence, so they can always be shifted as per the regional demands.
Will the gold move towards the eventual technical targets that some analysts are forecasting i.e from 1200 per gram to almost 4800 per gram on the back of further weakening of USD and rising crude? Or will the US economy start picking up causing strenghtening of the USD thus taking the sheen off Gold prices? Do I sell what I have and make a killing on a right sell call? OR do I accumulate further and make an almost 400% return on again a right call but on the buy side. Do i follow the herd and buy into gold or does it ring alarm bells in me that yet another crash is on its way - this time in gold markets.
Its not my wish to make decisions for u but to remind u that the decisions and also the P/L are entirely yours.