Consolidation Continues
by Joe Battaglia
Posted: April 8, 2008
Gold fell back $9
and silver gave up $.48 in early trading.
The market seems to be looking for direction and wanting to test support
levels to be sure this consolidation will remain a high level affair. The dollar is up 6 basis points at 72.26 and
oil is trading at about unchanged at $109.12.
The equities are also softer with the Dow down 67 points. Most of the correction in gold occurred as
oil sold off earlier in the day.
However, oil has rebounded. John
Nadler said the markets are trying to find some direction in the wake of recent
drops. He said further, "For the
moment, the action will continue to be dollar and U.S. economic news driven until
either the ECB or G7 signals are intercepted as to "where next?" on the
currency and interest rate scene."
Some believe that
the expectation of a U.S. rate cut has dimmed.
However, the economic data being released today certainly wouldn't
indicate that. The pending home sales
index dropped 1.9% in February. That
follows a revision lower for January.
Former Fed Chairman Greenspan said the economic crisis will continue
until the end of 2009. The IMF in a
report released today said they expect the total losses from the credit
derivatives problems to total over $900 billion. Currently we are about $200 billion into the mess. Clearly, the worst is yet to come. And, it will spread well beyond the
sub-prime mortgage issue.
Still investors
have difficulty in figuring out what to do in this environment. In my view, this is a good time for some
caution. Clearly, gold as a safe haven
asset should be part of every portfolio.
There is also news that market analysts expect the congress to approve
the IMF's plan to sell 403.3 metric tons of its gold reserves. However, this announcement was made weeks
ago and it seems not have had any real impact on the market. Nevertheless, some of the nervous nellies
are reacting to this development. Gold
would be sold within the purview of the central banks gold sales
agreement. That means there will not be
any additional gold coming to market.
In fact, central bank gold sales have been declining pretty
dramatically. There would probably
still be less gold coming to market in the future than there has been over the
past 10 years. In fact, one Dow Jones
headline reads, "Spot Gold Recovers, Ignores IMF News".
Any time we get an
opportunity to acquire gold or silver on a dip, it has made a great deal of
sense to do so. This market is well
supported and the issues that have been driving gold are going to be with us
for several years, at least. Therefore,
investors should be accumulating gold on every dip. As I have said so many times during the course of this seven year
long bull market, investors should acquire gold and silver on the dip. Today presents a great opportunity to do so.
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Investors should be mindful that past performance does not guarantee future results. Transaction costs are generally 5%
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and the sell price. The market must go up enough to overcome this spread before an actual profit is achieved. All markets go
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