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Discussion Topics -- January 26, 2011
Has Anything Really Changed? Trends to Follow in 2011

(Jan. 26th discussion) -- The World Economic Forum is set to meet this week in Davos, Switzerland to discuss the state of the global economy. A mantra of exuberance has already been noted, suggesting that a mere doubling of global credit by another 100 trillion over the next decade would fuel a global super cycle. This course of action, if taken, carries with it obvious implications. Continued fueling of credit bubbles will perpetuate and perhaps magnify the boom/bust cycles we've grown accustomed to over the past decade. It does, however, mark a noted return of market euphoria, which, coupled with a reduced risk of a sovereign debt default in Europe due to Chinese support in the credit markets, has eroded the risk premium in the gold price, and is perhaps linked to gold's recent pullback. However, in analyzing the technical picture, gold's pullback is quickly nearing vital support areas. The 200-day moving average for gold sits at $1285, with the last assault on the 200-day moving average taking place in mid-July 2010. Interestingly enough, that same pullback coincided with options expiration for the August gold contracts. Today, Wednesday January 26th, also is options expiration date for February contracts. This is significant because option expiration dates have often been associated with reversals in the gold price, as witnessed last July. Add to this the possibility of an enhanced inflation trade for the gold market, and this pullback looks to be an excellent buying opportunity. Featuring Pete Grant, Jonathan Kosares and George Cooper.

Figure 1
gold price 2009-2011

Figure 2
gold and 200 day moving average

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