Gold's outlook this week

by John Lee

02/21/2005

The Dollar

The dollar swiftly turned down at major resistance of 85. There was little news on the dollar front this past week. With the dollar index at low 80's, we don't see how other western currencies are fairing better over the dollar.



SFrancs

We wrote last week

"COT commercials have increased their SFrancs net long by another 12k to over 24k contracts, indicating the worst for SFrancs is most likely over the next few months."

Sfrancs staged a fierce rebound last week. Sfrancs commercials net long 16k, down from 23k. This indicates Sfrancs might have trouble piercing 50 DMA of 85 this week.

US long bonds

We wrote last week

"US long bonds have on 3 occasions in the past fell strongly off current levels. Coupled with rising short term rates, we wouldn't be surprised of a waterfall event in long bonds."



Mr. Greenspan testified last week that he was surprised that yields of long notes stayed so low. This perhaps triggered traders to sell. Fundamentals dictate a much lower bond prices from current levels.

Gold:

Gold mirrored the strong advance by the Sfrancs last week. Gold might correct a bit this week while approaching the $430 resistance. To borrow from Greenspan, we perceive gold's upside and downside chances being "roughly balanced" in the short term. Once $430 is decisively overcome, there is very little resistance to $450.

Silver

Silver continues to have strong showing. $7 now acts as strong support. If you don't have a position yet in silver we wouldn't wait. $8 level in our view will be taken out when gold takes out $430. We can see $10 level when gold gets to $450.

Palladium

Palladium is still in accumulation phase and presents a wonderful entry point. Caution though GFMS predicted a palladium price ranging from $150-$175 for 2005, citing oversupply and inventory build up.

Copper

We wrote last week:

Many analysts have been bearish of copper citing the need for a correction and China's cool down. Well the chart simply don't say so at this time. Once $1.45 is taken out, the rocket is launched again.

Copper didn't disappoint as it reached the $1.5 mark not seen since 1980's. We will see if copper advance sticks with week. If it does the price action will bode well for other metals.

Another copper takeoff could mean double-digit silver price in sight.

Gold stocks: XAU

XAU presents a good entry point for those who haven't a position. We don't see XAU breaching the February low.

US market

Net Commercials position of S&P 500 remained virtually unchanged at 25k short. It's too early to speculate the peak of S&P 500 at this point in our opinion.

Nikkei

Nikkei continues to consolidate, it seems to be waiting for something. Once it takes out 12000 with a vengeance, we could see much higher prices.

Swiss Francs and gold have made strong advances in the last week, such action continues to re-enforce the idea of a firmed established bottom in February. The dollar seems range bound in the 80's. With record deficits being old news and lack of eventful catalysts, it will be interesting to observe how long it takes for gold to challenge $450 and how XAU reacts to gold's advance. Silver paints an exciting story, 1 oz silver maples are still selling at below US$10 each. We pinch ourselves for every coin we get.

For those who haven't established a position in XAU, now is a good time. For subscribers, please review our February newsletter to find out what we are buying and selling.