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by Michael J. Kosares Author: "The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold" |
1/15/07 A publication of
USAGOLD-Centennial Precious Metals, Inc. |
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1-800-869-5115 Extension #100 4:00am - 7:00pm MT |
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"There's a strong sense in the upper echelons of the White House that Iran is going to surface relatively quickly as a major issue in the country and the world in a very acute way." - Tim Russert, NBC News "The President's inference was this: that an entire region would blow up from the inside, the core being Iraq, from the inside out." - Brian Williams, NBC News
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2007 gold price
forecast So. . .What about 2007? We have probably already seen the post-$730 bottom in the $570 range. In fact we've gone down and tested that level twice since May, so $570 seems fairly solid as a bottom. For 2007, my minimum upside target is $715 assuming we avoid major surprises and gold trades principally on monetary [dollar] considerations. (Gold closed Friday, January 12, at $625.5 and opened the year at $639.50) However, if we do get some surprises, or if (1) We get an escalation of the conflict in the Persian Gulf which would threaten the flow of oil, or an escalation of tensions with Venezuela , or (2) We experience a breakdown in the quid pro quo with China (or other trading partners), or (3) The new Congress proves to be as radical and anti-market as advertised We could see a breakout that would take gold to the $775-800 range. If all three were to become reality during 2007, we might challenge the all-time high in the $875 range. Having predicted the price with reasonable accuracy the past two years, what are the chances of getting it right again for 2007? As always, trade on this prediction at your own risk. There is as much chance I am wrong as right. Those who are buying gold for long term asset preservation pretty much view the prediction game for its entertainment value. On the other hand, buying low - which I think you will be able to do in the first part of 2007 - is always a good strategy.
"At a not-for-quotation
pre-speech briefing on Jan. 10, George W. Bush and his top national
security aides unnerved network anchors and other senior news
executives with suggestions that a major confrontation with Iran
is looming." There was much speculation
floating the markets on Thursday and Friday as to why the gold
price suddenly George Bush's speech on Wednesday night revealed a president who was not only prepared to ignore the advice of the Baker Commission (which essentially advised a withdrawal from Iraq), but also one who was determined to escalate the war with a troop increase, and perhaps push it beyond Iraq's borders. "We will interrupt the flow of support from Iran and Syria," said the president. "And we will seek out and destroy the networks providing advanced weaponry and training to our enemies in Iraq." On Tuesday, U.S. forces launched an attack against Islamic militants in Somalia. On Thursday, U.S. forces raided an Iranian consulate in Iraq and took five Iranians prisoner. These actions indicated that the president's speech merely announced an escalation in the Middle East which had already begun, and that the United States was willing to extend the war zone beyond Iraq's borders to Somalia and possibly Iran and Syria where Islamic militants have established havens. Once the reality sunk in, gold reacted. Adding to the nervous mind-set in the markets, a story published in last weekend's London Times warned that Israel had drawn up secret plans for a combined air and ground attack on nuclear targets in Iran. Concerns about an Israeli attack on Iran gained momentum this past weekend when the Financial Times published an article under the headline "Spectre of nuclear neighbor leaves Israel braced for action." The article explained that 2007 would be a decisive year for "halting Tehran's perceived nuclear ambition." Iran, Israel believes, will have the bomb by year-end. Tel Aviv, this article suggests, will be forced to act in 2007 if the United States doesn't. Israeli tactics, according to the Times' report, could include the use of nuclear bunker busters that penetrate underground. (They say the radiation therefore will be contained.) Most disturbing, the Financial Times article quotes a Princeton Islamic scholar, Bernard Lewis, as saying that Iranian president Mahmoud Ahmadi-Nejad, who has threatened to annihilate Israel, "actually wanted to provoke nuclear conflict as a means of hastening the arrival of the Mahdi, the Muslim Messiah," and that "[H]e and his immediate circle really believe that the Apocalyptic age is now." This combination of events is mind-numbing to say the least. In my view, they formed the backdrop for the sudden surge in gold demand last week. I would not be surprised to learn that physical buying from the Persian Gulf itself touched off the rally, followed by professional traders and hedge funds squaring their positions in response. Unlike the dollar crisis which is likely to unfold over an extended period of time, the situation in the Persian Gulf could drive the gold price higher immediately.
Gold closes up $13, scores weekly gain
of over 3%
"Gold futures climbed
Friday to close at their loftiest level in seven sessions, ending
the week more than 3% higher as traders scrambled to make their
moves ahead of a three-day holiday weekend. 'What we are witnessing,
with the strong advance today in gold, is similar to what we
have seen each time the U.S. market is closing: two world views
on gold,' said Ned Schmidt, editor of the Value View Gold Report.
'U.S. traders are in 'la-la land' and are bearish on gold and
bullish on paper,' he said. By contrast, the 'rest of the world,
which is bigger than U.S., is bullish on gold and bearish on
the U.S. dollar,' he said, adding that 'the entire world knows
that the dollar is going down in value, oil is long-term short
[in] supply and that gold should rise in value.'" Bloomberg offers fundamental reasons
for gold's strength
 "The central bank of Russia increased gold holdings by 2.2 percent to 394.1 metric tons in the third quarter. The share of currency deposits held in dollars by OPEC member-nations including Saudi Arabia fell to a two-year low of 65 percent in the second quarter. The dollar dropped 5 percent against an index of six major currencies in the past year. 'You've got a lot of creditor nations that are looking to diversify their credit balance,' said Michael Cuggino, chief executive officer of San Francisco-based Pacific Heights Asset Management LLC, which has about 20 percent of its $770 million Permanent Portfolio Fund invested in gold. 'They are starting to diversify into gold instead of just the U.S. dollar and other major currencies.''' Editor's Note: This Bloomberg article is an informative update of the reasons why nation states are moving out of dollars and private investors are moving into gold for the long run. _____ Trade in gold jumps in China
"Chinese investors traded enthusiastically in gold last year, according to the latest figures from the Shanghai Gold Exchange. Information from the exchange shows that in 2006 turnover in the precious metal reached 194.75 billion yuan (25 billion U.S. dollars), up 82 percent over 2005. A total of 1,250 tons of gold were traded, up 38 percent year on year." Editor's Note: This week's Time magazine cover proclaims "China - Dawn of a New Dynasty: With the U.S. tied down in Iraq, a new superpower has arrived." As the article above illustrates, a rising China will be good for gold. _____ Forum urges increased readiness for
disaster
"Countries and businesses around the world have become dangerously complacent about the risks facing them, a key authority has warned, saying that the vast majority of economic threats have worsened in the past year. The World Economic Forum said that, among other risks, there was now a chance of between 10pc and 20pc that the house price and debt bubble which has built up around the world bursts, causing more than $1,000bn damage. In its annual Global Risks Report, the forum gave warning that the world's recent golden stretch of growth might have given people a false sense of security. It urged governments to follow business's lead and appoint a national risk officer to make contingency plans in case of economic, environmental or terrorist disaster. Of the 23 global risk issues examined by the report, 15 had intensified in the past year alone, and none had eased off, the report concluded. They include climate change, the possibility of a flu pandemic, a sudden spike in oil prices and a retrenchment of globalisation." Editor's Note: Gold is not some magic talisman that will protect against the full effects of a disaster -- environmental, financial or otherwise. However, there can be no real state of readiness for the individual without it. I would rather face another terrorist attack or financial crisis with a good store of British sovereigns or Swiss Helvetias laid back than without it.
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In a
December 2004 interview with the Wall Street Journal, I predicted
$525 for gold's high in 2005. It hit that $525 the following
December. For 2006, once again in a Wall Street Journal interview,
I predicted a "breakout year" for gold with a top price
of $760. Its actual breakout high came earlier in the year than
I had anticipated (in May) and a bit lower than I had predicted
-- in the $730 range (intraday Comex).
experienced
a "surge" of its own. The usual suspects were trotted
out including technical signals, dollar-related positioning and
Far Eastern value buying, but there may be more to it than just
that. We could be experiencing the first stages of a major rally
based on a possible U.S. expansion of the Iraq conflict. I would
recommend paying close attention to what's going on in the Persian
Gulf, and the Mideast in general, as ominous developments there
form a backdrop for trading in the financial markets, including
gold.
