Can Gold Go Much Higher?

12/02/2009 10:10 am EST

Focus: MARKETS

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit, chief market strategist for VRTrader.com, says gold has come a long way, and may face an important test in the weeks and months ahead.

The news that Dubai World is basically defaulting on $60 billion cost world equity markets hundreds of billions, if not trillions, of dollars.

This situation may well be much ado about nothing over the near term, as the world will more than likely simply start the printing presses again to put a fresh coat of wallpaper over a crumbling wall. If they do that and equities once again turn higher, that is simply making things worse when the day of reckoning comes.

Gold's nine-day win streak [ended last week] as Dubai's woes pushed the dollar higher and hit commodities hard. On Friday, gold was down $20.70 to $1,171.40 [an ounce]. Gold actually hit an all-time record high of $1,195.80 overnight before selling off to $1,136.40, a huge $60 swing, though it then recovered most of those earlier losses. (It closed above $1,196 an ounce Tuesday—Editor.)

Gold rallied about 13% in November, its best month in ten years. I think it is time to reassess your position in gold. We've traded to 1,200, and though we could see 1,300 (the upper end of my reported reverse “head and shoulders” pattern), this is not a time to be putting on new long-term positions.

The potential to $1,250 to $1,300 still exists, but unless we break out quickly, odds are diminishing. Ultimately, we're going a lot higher and if you're a long-term player, these comments may be irrelevant.

However, should gold retrace back to $1,000 or under, it could become quite disconcerting that you didn't take something off the table.

Oil was hit hard as Dubai's troubles will likely reduce demand for oil and may also force the region to increase production to raise revenue and pay off their debts. Crude oil was down 1.91 to $76.05 [a barrel], but had been as low as $72.39 earlier in the session. (It closed below $78 Tuesday—Editor.)

This year's US crude oil production is on track to show its biggest year-on-year jump since 1970, an analysis of historical data by Platts showed Friday. If the 5.268 million barrels a day of average production level, recorded in the first ten months of the year, holds through December, this year's output will rise 6.4% from 2008, the Platts analysis of Energy Information Administration data showed.

This year's production level will be the highest since 2004, when output averaged 5.419 million barrels a day. Peak oil production was recorded in 1970, when the US produced 9.637 million barrels of oil.

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