Skip to main content

Gold Outlook for 2006

Following are the excerpts from Peter Grandich's Outlook for 2006
Gold
• Physical and investment demand –
According to the World Gold Council (WGC), demand for gold coins, bars and bullion-backed shares rose 56 percent in the third quarter of 2005. Investors and jewelers bought $12.5 billion worth in gold, or 838 metric tons in the third quarter, up 7.6 percent from a year earlier. (Jewelry demand accounts for 73 percent of gold consumption). The rapidly growing economies in China and India have been key and while soft patches are likely going forward, the enormous wealth creation on-going there appears to assure strong demand for gold for the foreseeable future.
Debt, deficits and the #1 crisis in America
I believe the debt and deficit crisis has been one of the least talked about, but one of the major reasons why gold has performed so well. I’ve spoken to many sophisticated foreign investors and one of their core concerns is the out-of-control fiscal house of our government and many of our citizens. By 1980, U.S. public debt reached one trillion dollars--191 years after we first started keeping records (note that 1980 witnessed the last great run-up in gold prices). Now, just 25 years later, it’s on the threshold of $8 trillion. In 1980, each American’s share of the debt was $4,405. It’s now $26,700.
Bottomline –
Taking in all the above and throw in the belief the U.S. dollar can renew its long-term downtrend and eventually break below 80 on the U.S. Dollar Index (more below), I believe gold has all the underpinnings to make former multi-decade resistance around $500 the new floor and a test of at least $600 in 2006 is quite possible.

U.S. Dollar Index -
While an argument can be made that the U.S. Dollar Index has made a bottom technically, my interpretation is it must get above 95 in order to reverse its downtrend from the 120 area. This time last year, people were tripping over themselves to declare the dollar dead. In addition, the U.S. government for 2005 only, allowed U.S. corporations to repatriate dollars that were overseas and this combined with the Fed’s raising of interest rates allowed IMHO a counter-trend rally to occur. I’m looking for the neckline above 92 to hold and a resumption of the downtrend in the second half of 2006 to take place.

Comments

Post a Comment

Popular posts from this blog

Cognitive rules of business presentations

In his recent book, Clear and to the Point, Kosslyn explained that the four rules of PowerPoint are: The Goldilocks Rule, The Rudolph Rule, The Rule of Four, and the Birds of a Feather Rule. Here's how they work. The Goldilocks Rule refers to presenting the "just right" amount of data. Never include more information than your audience needs in a visual image. As an example, Kosslyn showed two graphs of real estate prices over time. One included ten different numbers, one for each year. The other included two numbers: a peak price, and the current price. For the purposes of a presentation about today's prices relative to peak price, those numbers were the only ones necessary. The Rudolph Rule refers to simple ways you can make information stand out and guide your audience to important details -- the way Rudolph the reindeer's red nose stood out from the other reindeers' and led them. If you're presenting a piece of relevant data in a list, why not mak...
Post a Comment
Read more

Value of dollar - Part 1

A Simple Perspective Will Do The date is 2000-05-28. Don't you get tired of all the bad news bears reminding you of all these instabilities, excesses, and 'potential' tensions in the global economy? After all, hasn't it always been like that? Yes it has, but not in money it hasn't. Increasingly, investors find it harder to know where to put their savings. What about Government Bonds? Wrong. Their recent record of capital losses have wiped out your guaranteed yields, probably because the stock market keeps crowding them out, and this even in a strong dollar and low inflation environment. Furthermore, there is no reliable liquidity and potentially poor quality debt in the corporate sector. Foreign assets? Wrong. Most of the world's economies are riskier, have been under performing, and also, there is this thing called currency risk. Like how is the average person gonna cope with currency...
Post a Comment
Read more

Depreciation of British Pound 1900-2000

When the Bank of England was formed the powers to create money was finally transferred to private hands. The creation of Fed in US, was just a part of this cycle. Though it is a common knowledge US Dollar has depreciated nearly 100% since the creation of Federal Reserve, the same is the case of all the currencies across the globe. For example, below is the UK Parliament data that highlights the depreciating value of Pound.
2 comments
Read more