We Won't See $1,000 Gold Again Soon

09/24/2009 1:00 pm EST


Eric Roseman

Editor, The Commodity Trend Alert

Eric Roseman, editor of Commodity Trend Alert, says gold and silver have broken through resistance, and are both headed higher as the US dollar weakens.

I’m pretty convinced the window to buy gold below $1,000 will be gone for the next several years, or not until this bull market is over. Silver is also looking good at these levels and might not see $15 again any time soon.

We’ve just broken out of important technical trading ranges for gold this month; even if we have another pullback below $975 or so, I don’t see the gold price languishing below $1,000 an ounce much longer. (Gold closed above $1,008 an ounce Tuesday, while silver closed above $17—Editor.)

There’s no doubt that fabrication demand has collapsed. India, Turkey, and Russia are the largest fabrication consumers for gold bullion, and demand has indeed fallen off a cliff—especially since last fall. Some reports suggest gold demand has plunged 90% since hitting $750 an ounce.

However, the big move we’re seeing now for gold is largely coming from investment demand—and mainly in exchange traded funds. Gold ETFs command the largest share of the ETF business at $50 billion in assets, according to Barclays Capital.

Some hedge funds, like Paulson & Company (John Paulson) are reported to be holding 43% of their funds in gold and gold-mining stocks. So there’s some big institutional money currently long or invested in gold.

And then there’s China and Russia, which I believe are accumulating gold bullion in stealth fashion to dilute their dollar Treasury holdings. China, in May, did an about-face and revised sharply higher its gold holdings, according to the World Gold Council. Can you blame China? What would you do with more than a trillion dollars’ worth of Treasury bonds? Heck, I’d be unloading!

Both precious metals now look extremely strong technically. Both have now broken out of recent ranges, with silver prices up more than 40% this year compared to a 12% rise for gold.

Meanwhile, the safe-haven trade is over for the US dollar.

As stocks and other risky assets have surged in value since March, the dollar has been sold. I can’t make a bullish case for the dollar any time soon; I can’t even make a bullish short-term case for the greenback until there’s evidence of a revival in housing, employment, [and] bank lending and a rise in domestic consumption. None of these important indicators have improved, and the Federal Reserve won’t tighten or hike rates until at least 2011.

You can see the high for this cycle at 89.17 last spring; the Dollar Index now sits below its 50-day moving average of 79 and comfortably below its 200-day moving average of 82.83. The dollar has lost technical support; with interest rates likely to stay at or near zero percent for the foreseeable future, there’s no reason to hold this currency.

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