Will gold price rise next week?

December 26th, 2006

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Today, we read this article, Gold May Rise as Investors Seek Alternative to Dollar Assets in Bloomberg. That article reported that ?Thirteen of 34 traders, investors and analysts surveyed by Bloomberg from Sydney to Chicago on Dec. 21 and Dec. 22 advised buying gold, which rose 0.5 percent last week in New York to $622.30 an ounce, the first gain in three weeks. Nine respondents said to sell the metal, and 12 were neutral.? So, from this survey, 38 per cent are bullish, 26 percent are bearish and the rest (36 percent) unsure. Further down the article, it said, ?Speculative long positions, or bets prices will rise, outnumbered short positions by 69,893 contracts, down 11,936 from the previous week, the Washington-based commission said Dec. 22.?

What does this all means?

All these differences in opinion make the market fun and interesting to observe. They make the price go up and down. Given that at this time, the bulls seem to outnumber the bears, gold may soon rise. But the market, as fickle and unpredictable as it is, may reverse course any time. As we said in The story of gold, does the mob really know the significance of gold? Does it really understand the macroeconomic big picture and history of gold? Does it really appreciate the fundamental reason for holding gold?

Further down the Bloomberg article, we read that ?Some analysts are sceptical gold can gain for a seventh straight year, a feat unmatched in the metal’s trading history. There will be ?new interest initially,? said Christoph Eibl, co-founder of Tiberius Asset Management AG in Zug, Switzerland, who predicts gold will average $580 in 2007. ?Then commodities will burst.??

We are simply amazed at how this opinion could possibly come out from the mouth of a professional money manager who has millions of dollars worth of assets under his management. Simple put, he believes that the fact that gold has been rising for seven straight years is unprecedented in its trading ?history? (the trading ?history? that he talked about is nothing compared to the gold?s long history that stretched for millenniums into early human civilisations). Thus, he reckoned that this unprecedented rise is due for a correction. The fact that he said such things betrays that he did not understand: the nature of gold (see Is gold a commodity?), the fundamental value of gold (see Entrenched perception on the value of paper money) and the history of humanity?s relationship with gold. Yes, the rise in gold price for seven straight years is unprecedented. But what is more unprecedented: such a rise in gold price or the unparalleled inflation of fiat money and credit? Does he understand the underlying factors that give rise to this phenomenon in the first place?

We shudder to think that even the professionals do not know their stuffs. And many of those professionals are handling our retirement funds.

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