Golden Slumber

On January 15, 2004, last Thursday to be precise, the price of Gold posted its biggest one-day decline in three months, settling back 3.2% on the day and closing.

The pro traders out there suggest that the precious metals New Year decline is the result of profit taking by big investment funds and the bounce up in recent days of the U.S. dollar. A delicate dance between the Euro and Dollar is reflected in the price of the yellow metal.

Gold dropped $13.30 to close down at $408.70 for February delivery. A nasty one-day decline indeed. But really, not much has changed since gold hit its 15-year high of $431 an ounce on January 7, 2004. The U.S. deficit is still growing daily by over a billion dollars; geopolitical factors and fears still cast a dark shadow on our nation’s future, and the U.S. dollar is still trending down.

Another key factor in gold’s meteoric rise in the last eighteen months is the estimated US$10 billion of investment that has flowed into gold and gold investments in 2003, an amount double 2002’s US$5 billion.

Gold has always be the subject of a variety of conspiracy theories. I don’t think I’ve heard them all, but one of the more interesting ones is that Bin Laden has urged the world’s Muslims to shun the U.S. dollar and return to gold.

Last Thursday’s gold conspiracy was perhaps less interesting than that, but still the G-7 nations are presently conspiring to put a floor under the U.S. dollar. The supposed strong dollar “plan” is expected to be rolled out in February at the scheduled meeting of the G-7.

I wondered if they invited Mr. Greenspan and his printing pals? Besides, the Japanese have been trying unsuccessfully, and at a cost of billions if not trillions of Yens to Japan’s Central Bank, to stop the slide. They are almost at the end of that particular rope, and I wonder how avidly others will take up the challenge.

A lot of G-7 nations were huge sellers of gold at the bottom of the market, and they don’t look so astute now that the price has rallied. I suspect these “financial geniuses” will tread carefully no matter which direction they decide go.

Another thing we have to remember is how prices move. Remember that a stock or commodity can have more down days than up, but still show significant price increase over the long run.

In recent months, particularly September and October of 2003, gold bears celebrated what they thought were some key reversals that left the price of gold down for those months. We know what happened in the following days.

Our viewpoint at PROFIT CONFIDENTIAL is that there are always “speed bumps” in the ascent of any bull market, be it in equities, bonds or gold. This is the nature of price movement in the market.

As I’m fond of saying, it is the job of any bull market to throw off as many bull riders as it can along the way. That way a courageous few can profit significantly at the top, and the many thrown aside who sold early will know that they supplied the opportunity for others to profit and will utter the loser’s motto, “Should have… Could have… Would have…”

If the war on terrorism comes to a quick end; if our government reigns in spending; if we reduce our overwhelming deficit; if Greenspan et all turn off the printing press, then maybe, and I mean maybe, I might begin to doubt my yellow friend.

Until that time I will continue to buy on price dips and stay the course. On the way up a big mountain, even the hardiest climber has to take a rest and get a good night’s sleep. We shall prevail and profit. You can bet on it.