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February 24, 2006

Strength in gold explained, Fri., Feb. 24, 2006, 10:00 AM

Exogenous events like a Presidential assassination or a declaration of war clearly elevate emotions and have an immediate impact on capital markets. But in the weeks following, the emotions smooth out and trading gets back to the usual factors (fundamentals, quantitative, technical and macro-economic).

This morning there was a terrorist attack on an important oilfield in Saudi Arabia. Yesterday or the day before there was escalation in the civil strife in Iraq to go along with enhanced attacks against foreigners.

Co-incidentally, there has been consolidation of recent gains in the gold market, which, over the course of a couple weeks earlier this month, pushed prices down from $575 to about 535. That selling had been over-done according to the RSI technical indicator.

So there was a convergence of the technical and the exogenous factors that served to shoot the gold prices up today.


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In order to continue to lift higher at this rate, gold will need a series of such emotional days to happen, and that is not likely. So now, traders will have to rely on technical indicators like RSI to help them make decisions in the short-term.

Longer term, there are reasons why the price of gold has been rising over the past three years, and will likely to continue lifting. On that front, nothing's changed.

Posted by Posted by Bill Cara on February 24, 2006 10:01:56 AM | Category: Cara Today in the Market , Gold

Discourse

Do people really think that the Saudi and Nigerian attacks are not linked? This situation has been discussed on this site lately, so it should be no big surprise.

Are the gold negative comments posted on this site for real?

Do I have the nerve to short oil or gold in this type of geopolitical environment, hype or not? No, capital preservation is part and parcel of my process.

Posted by: g034 [TypeKey Profile Page] at February 24, 2006 3:01 PM [link]

This is an interesting example of recent hedging done by a gold mine company. It may give you idea how mines hedge against gold prices and currency exchange rates. Since the hedging was necessary for gold mine financing, they disclosed all details.
Click on http://biz.yahoo.com/bw/060224/20060224005122.html?.v=1
Any comments?

Posted by: bioscientist [TypeKey Profile Page] at February 24, 2006 10:36 PM [link]