Ed Note: Below is a small excerpt from Mark Leibovit’s 12 page The VR Gold Letter with a trading recommendation from the VRPlatinum Newsletter Letter.
A bigger rally in the U.S. Dollar Index may be underway. I have mixed feelings about this issue. Sooner rather than later I believe Gold and the U.S. Dollar Index will diverge from their current inverse relationship. We have seen this happen on several occasions already. In the meantime there remains the risk that such a rally could trigger a correction (in Gold) of unknown proportions which we would have to monitor day to day.
Gold could still become quite explosive to the upside at any moment. I have still have an unfulfilled upside target of 1300 based on the previously displayed reverse ‘headand-shoulders’ pattern, the fact that most investors (maybe 5% in the U.S.) are in the Gold market and the fact that there is still near universal skepticism regarding the efficacy of its advance. My $3000 upside target for the long-term still stands and it is always possible we could see prices even much higher. Should a correction unfold, current downside risk is back to the 1070 area.
Under 1020-1030 I would get concerned that a bigger top (not permanent) would be in place. All we can do is take one day at a time. We’ve seen sharp corrections in Gold before and we know there is significant government manipulation in this market (see last week’s newsletter or go to HERE. For now, my belief is that should a decline unfold, it would be temporary.
Update via VRPlatinum Daily Newsletter Precious metals rallied to new highs yesterday morning as the Dollar fell and tensions between Iran and the west escalate. But the metals pulled back from their morning highs in the afternoon, though they still closed with nice gains. Gold was up 13.20 to 1164.10, its seventh straight up day, and set a new all time record high of 1174.60 yesterday morning. Silver was up just 0.07 to 18.58, but set a new recovery high of 18.95. Platinum was up 10 to 1455 and hit a new recovery high of 1482. Palladium was up 9 to 370 and set a new recovery high of 382.
We took trading profits yesterday in our Gold index positions with a view to re-enter on a retracement. Platinum subscribers stay tuned.
Take a moment and read the following Reuter’s news story proclaiming that banks to be net buyers of gold ahead which is something I have written about for many years. This will certainly change the complexion of the gold market. I also still subscribe to the view that we’re in a 20 year up cycle in gold (chart in the November 9 edition of the VR Gold Letter):
BlackRock says c.banks to be net buyers of gold
SYDNEY (Reuters) – Central banks will be net buyers of gold this year as they diversify away from the U.S. dollar, marking a reversal of a decades-old trend, global commodities investment fund BlackRock said on Monday in comments that helped drive bullion to fresh record highs.
Investment in gold by central banks has picked up recently, with India buying 200 metric tons from the International Monetary Fund, and Taiwan’s central bank is studying whether to raise the amount of gold in its forex reserves, with China and South Korea also debating the issue.
BlackRock is one of the world’s largest fund managers, boasting a total $1.4 trillion under management across all asset classes. It is manager and adviser to the U.S. Federal Reserve and its views can influence the direction of global markets.
Evy Hambro, who runs two of the world’s largest commodities funds, BlackRock World Mining Fund and Gold & General Fund, gave an upbeat outlook for gold during a media briefing in Australia.
His forecast for net central-bank purchases of gold this year would, if met, mark the first year in two decades when the world’s central banks bought more gold than they sold. They have been net sellers each year since 1988.
Gold stored in central banks worldwide has dropped more than one-sixth since 1989.
“The most recent break-out in the gold price in U.S. dollars has caused most gold prices to start trending higher at the same time,” Hambro said, adding that investors were now looking for gold to rise in other commodities as well as U.S. dollars.
“When you start to see the price rising in a range of different currencies, it is a clear sign of a very strong market to come,” he added.
Spot gold stood at $1,123.70 by 9:16 p.m. EST after touching $1,126.30 per ounce, a record, versus the notional New York close of $1,118.50, helped higher by Hambro’s bullish outlook, according to financial broking group IG Markets.
Bullion has been on an upward spiral as a hedge against the U.S. dollar’s weakness and rising inflation risks, traditional reasons to lap up gold.
Based on the dollar index of major currencies, the U.S. dollar has dropped 7.5 percent this year versus a 33 percent rise in the U.S. dollar gold price.
In other currencies, gold has not reached new highs since early 2009. In Australian and Canadian dollars and the South African rand, it peaked in February.
But Hambro said investors were now “looking for price rises across all currencies” as central banks built up their gold holdings and global supplies tapered off.
“Gold’s role is gathering a lot more attention in terms of risk diversification,” he said.
By 1999 central bank selling was so commonplace that the big European banks signed a pact capping sales at 400 metric tons a year to keep the price from collapsing.
It worked. Gold has gone up just about every year since.
Hambro also said the high level of gold production in China, which has replaced South Africa as the world’s biggest producer, was not sustainable, pressuring world supply.
China’s output rose 13.49 percent in the first half of 2009 from a year earlier to 146.505 metric tons, according to the Ministry of Industry and Information Technology.
China is widely assumed to be buying domestic gold production after revealing in April it held 1,054 metric tons of gold, a jump of 76 percent from its last word on the subject six years earlier.
The Reserve Bank of India last month bought 200 metric tons of gold from the International Monetary Fund, and Sri Lanka’s central bank governor told Reuters this month his bank had been buying gold for the past five or six months.
But not all banks are trading foreign currencies for gold.
Korea has the world’s sixth largest foreign exchange reserves but ranks 56th in terms of gold holdings. Its governor has said it would not be easy for the bank to suddenly increase gold holdings because of the market impact.
Japan has kept its gold reserves steady at 24.6 million troy ounces since mid-2001. The Royal Bank of Australia has not bought any gold since selling two-thirds of its reserve in 1997.
Hambro also said U.S. demand for commodities was starting to show signs of recovery. This, along with stronger Asian demand, set the stage for a prolonged bull market, he added.
This small excerpt was from Mark Leibovit’s 12 page The VR Gold LetterThe VR Letter is published WEEKLY and Mark Leibvit has been the Awarded #1 Gold Timer by Timers Digest in 2007, 2008 and is in postition to win 2009 with his fine Gold forecasts throughout the year so far including Gold zooming to another new High of $1,131 in tonights overnight trading. Money Talks highly recommends subscribing to Mark’s Gold
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