QE3 most likely scenario.” support gold price

The gold price, at $1,785 per ounce, traded near unchanged on Wednesday following the news that producer prices rose more than anticipated. The price of gold showed a muted reaction to the release of the Producer Price Index (PPI), which rose 0.2% month over month and 7.2% year over year – both slightly hotter than a Bloomberg survey of economists. Commodities moved higher across the board with crude oil rising 1.5% to $87.99 per barrel and copper advancing 0.6% to $4.04 per pound. Silver rose above $40, climbing $0.15 to $40.05 per ounce. 

In the U.S., the gold price also indirectly received support from a Goldman Sachs research report. In a note to clients, Francesco Garzarelli, chief interest-rate strategist, altered his monetary policy forecast to include a third round of quantitative easing (QE3) in its “QE3 most likely scenario.” support gold price.

“The central bank has indicated that its current economic forecasts warrant policy rates remaining close to zero for at least another two years and that it stands ready to expand its balance sheet further if needed,” Goldman’s Garzarelli wrote. “We have built a third round of long-term asset purchases (‘QE3’) into our baseline, although that is, of course, contingent on sub-trend growth in the near term.”

While Goldman Sachs did not discuss the implications of QE3 for the gold price in the report, history suggests it would be quite favorable for the price of gold. Richard Russell, a long-time gold bull and author of Dow Theory Letters, presented his case for higher gold prices.

“When chaos reigns, people look for certainty,” Russell wrote in a recent letter. “When all is lost, only one item stands supreme and has been supreme for thousands of years. That item is gold…The anti-gold element is afraid of gold hitting the even number of $2,000, thus we see gold, day after day, fluctuating in the $1,500 to $1,700 area, but never breaking out to $1,900, or God forbid – $2,000.”

Russell went on to say that “At $2,000, the next objective would be $2,500, and from there $5,000, and from $5,000 – $10,000. As gold marches higher, it’s playing the death knell for fiat money. And every central banker knows it.”

Source: http://malaysiagoldinvestment.blogspot.com/

Gold seen peaking at $1,900/oz in next 6 months - GFMS

MUMBAI | Thu Aug 18, 2011 9:34pm IST

(Reuters) - Gold could hit $1,900 an ounce in the next six months, driven by buyers seeking an investment safe from global economic problems, but a further rise to $2,000 looks unlikely, metals consultancy GFMS said on Thursday.

"Gold will be muddling through to peak at $1,900 (an ounce) as U.S. data points have been ambiguous, the action on the fiscal and monetary front is also ambiguous," said Paul Walker, global head of precious metals at GFMS, which has been acquired by Thomson Reuters.

Gold extended record highs above $1,825 an ounce on Thursday after poorly received U.S. jobs data hurt assets seen as higher risk, such as stocks, while boosting interest in nominal safe havens such as gold.

So far in August, the price has risen by more than 12 percent, putting it on track for its biggest monthly gain since November 2009.

"In the time frame, we really need exceptionally dramatic news to push gold above $2,000 and this is not our base case," said Walker. "This is highly unlikely."

Although gold remains off its inflation-adjusted peak above $2,000 struck in 1980, it is one of the top performing assets this year, up by over 28 percent versus a 15-percent loss in U.S. blue-chip stocks or a 7.7-percent decline in the price of copper .

He said there was a high probability of India's gold imports crossing 1,000 tonnes this year -- up four percent on 2010 -- as expectations were for prices to gain further.

The World Gold Council in a report on Thursday said Indian gold jewellery buying was up 17 percent in the second quarter and that signs of strength in the market remained.

Gold imports by MMTC, India's second biggest importer of the metal, have tumbled to 5 tonnes so far in August as buyers preferred a 'wait-and-watch' approach. Walker said consumers would wait for price stability before jumping in.

"People are getting accustomed to this kind of a benchmark (price) even though it is at incredibly elevated levels. Everybody who is involved in the value chain in the Indian gold market thinks prices will go up," said Walker, ahead of a conference in Kerala.

Silver prices could extend gains to $50 an ounce in the next months from around $40.60 an ounce now, he added.

"It will follow gold up ... It will move towards $50, but it is going to be a hell of a lot more volatile," said Walker.

Silver prices have more than trebled since 2008 to peak at $49.51 an ounce this year.

"Silver will benefit from the same factors as that of gold from rising investment drivers. Until the global macro situation gets clearer, prices will go higher," he said.

(Editing by Anthony Barker)

Source: http://in.reuters.com/article/2011/08/18/idINIndia-58854820110818

Why Gold Might Hit $5,000 Within Two Months

My firm has written often over the past couple of months comparing historical price movements with current developments.

To show you a few:

• Gold Headed To $5,000 per Ounce?
• Silver 2006 vs Silver Today, Does It Look Familiar?
• USD-JPY: Let The Crash Begin

To make the comparisons easier, I developed an indicator for the Prorealtime Charting software, which allows me to “go back in time”.

The first article showed us that it’s possible that gold could explode towards $5,000 over the next couple of months. Let’s have a look at the chart. (All charts created with Prorealtime.)


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But since anything is possible, let's look at this further: What could cause gold to explode?

Think about a total loss of confidence in currencies, especially the US Dollar.

As the second graph (below) shows, the US dollar is headed for a crash against the JPY. We have already seen part of that crash, but then suddenly the Bank of Japan intervened and the price shot up. However, interventions don’t work (except for the very short term) in our opinion, and right now, the USDJPY is already back around its lows, despite the interventions.


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So yes, gold could explode to $5,000. Especially if we would get a complete loss of confidence in the US dollar.

However, when you cross the street, you don’t just look at one side if a big truck is coming. The same goes for investing. One should always consider different views. Therefore, we compared the gold price today with the price movement of early 2006 to early 2008 in the chart below:


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We all know what happened with gold in 2008. It dropped from as high as $1,033 to as low as $681, as all assets were liquidated in order to obtain cash. We were experiencing a really big credit crunch.

As gold and stocks sold off in 2008, gold stocks were hit even harder than gold. If the comparison of gold now vs. 2008 would hold, then what should we expect from gold stocks? Well, the chart below has the answer.


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What would happen to silver? Exactly. The same as in 2008: a huge sell-off.


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Now I can already hear you say, “Hey, what about stocks?”

Yes dear readers, stocks also follow a similar pattern, as shown by the price action of the German DAX index.


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One last thought: Why is Mr. Paulson’s biggest holding the SPDR Gold ETF (GLD)? He doesn’t own that many gold stocks, but still, he is uberbullish about gold. If he really thinks gold will trade at $4,000, then why doesn’t he load up on gold mining stocks?

Maybe he thinks gold and gold stocks will completely disconnect, with gold going through the roof, while gold stocks tank just like the general markets? That trend might have already been developing over the last couple of months, as gold is at an all-time high, while gold stocks are still trading at levels where gold was trading about $500 lower.

The Gold Forecast

Charts one and two (below) both use different technical models and reach very similar conclusions. They also predict similar new record highs.
Last week gold traded to a new record high of 1813 dollars per ounce. Gold hit this price point only for a brief moment, vanishing as quickly as it came. It has since corrected to a low that is equal to a 38% retracement of this last rally (1730). 

Chart one (above) is an intraday chart (360 min.) of spot gold. There are a few basic techniques being utilized to reach its conclusion, the first of which is Elliott wave. According to our current wave count we have just completed the last corrective wave (4). This conclusion signaled the beginning of an impulse wave  (5). The conclusion of this fifth wave will complete not only our intermediate count but our major count, since both will be at wave five. Basic Elliott wave forecasting uses a model which takes the price move and distance of wave one to create a benchmark by which we can forecast the following impulse waves three and five. In simplest terms one possible outcome is that wave one and wave five will be about equal in terms of their price move. As you can see from the chart above if wave five is simply an equal size to wave one we could see gold trade as high as 1865 – 1870.

Chart 2 (above) is a daily chart of spot gold. This chart uses a similar technique that is Fibonacci-based rather than Elliott wave based. In this model we again use a prior impulse wave as our benchmark and then create Fibonacci extensions to forecast possible price targets. In this case we are using a much longer count to accommodate a complete long count wave.

First we measure the price move from “c” to “1” (October 2008 to December 2009). The next step is to extend our Fibonacci sequence to the impulse wave that began in August of 2010. From this data we then can plot both 123% extension and 138% extension. Our 123% extension takes the market to roughly 1809; this was our first initial target. Following a correction that is just completed this last impulse wave will take us to the next logical Fibonacci extension level, which would be 138%. That model creates a price target of 1886.

So, we have two different technical models - one based on a straightforward Fibonacci sequence and the other based upon Elliott wave  - using different data points altogether finding confluence at the 1880 area. Does that mean that gold will trade that high? No. However, the agreement found within these two approaches lends a higher probability that such a target might in fact be actualized.

Gold Just Create a Short-Term Bottom

The chart below details the short-term significance of $1720 for gold. Investors should take notice how gold rebounded strongly when $1720 was approached. The price level of $1720 previously acted as resistance, but now it is acting as support.

The chart listed below also shows another reason to pay attention to the $1720 price level in gold. The chart is listed with Fibonacci price levels at a 25%, 38.2%, 50%, and 61.8% retracement. Fibonacci retracement is a popular technical analysis tool investors may use to help determine the severity of a pullback after a well defined rally. The 50% retracement is technically not a Fibonacci number, but is often included in the analysis. For the rally that took gold to $1815, we will use a base of $1625, where gold built a launch pad to shoot $1900 higher.

Once again, the $1720 price level serves as a key target using the 50% retracement level. Yesterday, gold futures gained for the first time in three sessions.  Technical analysis alone doesn’t explain the support level of $1720, but it helps to paint a clearer picture. The U.S. Dollar (NYSE:UUP) also gave gold(NYSE:GLD) and silver (NYSE:SLV) a boost on Monday as it sank lower. Although long-term holders of precious metals (NYSE:DBP) are less concerned with the daily and weekly market noise, short-term traders should keep an eye on the $1720 support level. If support there fails, additional support from the 61.8% retracement level can be seen at $1697, which coincides closely with the psychological support of $1700.