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Wednesday, September 10, 2008

The Best of Times, the Worst of Times for Gold

Gold is another one that’s hard to figure out. Supply is dropping in South Africa and Australia, yet overall mine supply rose 8% to 590 metric tonnes in the second quarter of this year. Demand is surging in India, but prices are plunging today (probably due to a combination of the ever-strengthening U.S. dollar and fund selling).

Where do we go from here? Here are some stories that may lend some insight …

GFMS bullish on gold but cites risk that investor demand could drop

The chief executive of precious metals research firm GFMS said on Monday that bullish macroeconomic factors should keep the price of gold at a high level over the next few years, but a potential decline in investor appetite could also pose a huge downside risk.

SPDR Gold Trust holdings dip more than 10 tons

The SPDR Gold Trust GLD, the world’s largest gold-backed exchange traded fund, said it sold more than 10 tons of bullion on Tuesday, or 1.7% of its total holdings of the precious metal. SPDR now holds 631.2 tons of gold, down from 641.93 tons on Sept. 8. The trust has sold 68.7 tons of gold since its holdings hit a record 705.9 tons two months ago.

Gold Falls to 10-Month Low as Dollar Gain Curbs Hedge Demand; Silver Drops Gold fell, touching the lowest price since October, on speculation a drop in commodity prices and a stronger dollar will reduce demand for the precious metal as a hedge against inflation. Silver also declined.

Goldcorp Has Cash to Make Purchases Amid Mining-Share Collapse, CEO Says Goldcorp Inc., the world's second- largest gold miner by market value, said it has $1.2 billion in cash and no debt, putting it in a good position to make acquisitions amid a collapse in mining stocks.

Manipulation? Or simply deleveraging?

By Bob Moriarty

XX Sean’s note -- Bob Moriarty is one of the very bright fellows who was on my last silver tour in Mexico. His article is worth reading in its entirety.

My take: I expect gold to test $750, and maybe lower than that. We have hedges on, and I’m comfortable with that. But as Bob points out, gold is getting extremely oversold. The snapback could make your head spin, so be prepared to move fast.


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