Tuesday, December 22, 2009


Gold intraday has tested the Itz Price Objective of $1075 today, actually $1074.53, at the moment it is trading $1085. It could go lower as I've pointed out in my previous blog posts, $1050 or the India buy of $1035. Many are now raising the question..."could the dollar carry trade be over?"...Taking a look at the past few decades and how gold did versus the S&P. One should ask how could gold have beaten equities in the last 10 years, when there was no inflation? And why did gold not perform in the '90s?
One of the major reasons for this performance in gold has been the actions of world central banks, in the '90s they were net sellers of gold and this decade net buyers. Market strategist Marc Faber recently stated, that he expects more central banks to follow India’s example and gather reserves of gold. Earlier this month, a top Chinese official announced that the country is eager to increase its gold reserves to 6000 tonnes in the next 3-5 years and 10000 tonnes in the next 8-10 years. China, the fifth largest holder of gold in the world with 1054 tonnes, has been aggressively trying to mop up gold reserves to its foreign exchange reserves. China is also eager to buy IMF gold, but not at this high price that India has paid ($1035). China obviously wants prices to crash, so that it enables the country to amass more gold reserves at a lower price. China wants to wait and watch so that prices of the yellow metal crashes to realistic levels in fact, wants to buy gold cheap, around $800. Will IMF sell gold to China at $800? I don't believe so.
One other note, the Volatility Index ($VIX) is below the 20 level today, 19.70. It hasn't been this low since August 2008, the markets are complacent.

I annotated these charts today, comparing the S&P500 ($SPX), PHLX Gold/Silver Index (XAU) & the AMEX Gold Bug Index (HUI) A)1990-1999 B) 2000-2009.
click charts to expand images

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