by Peter A. Grant
March 03, a.m.
(from USAGOLD.com)
--
Gold has retreated from the fresh new all-time high
established on Wednesday at 1440.00. With no new substantive developments in
North Africa and the Middle East, investors have been locking in profits.
However, they are likely looking for opportunities to re-enter the market as
well on corrective dips. The January correction was a textbook retreat to
within 2% of the 200-day moving average, followed by new record highs.
Beautiful. Despite today's softness, technically, the dominant uptrend is back
underway.
The level of uncertainty that prevails in the Middle East/North African region
is likely to be a limiting factor on the downside for the metals. An overture
by Venezuelan President Hugo Chavez to mediate the Libyan crisis has been
roundly rejected by everyone...except perhaps Colonel Gadaffi. Fears of further
contagion continue to swirl, which is driving investors out of the region.
The Dubai stock market has plummeted to 7-yr lows and Saudi Arabia’s benchmark
stock index tumbled 15 percent this week. Oil prices have backed-off the highs,
but the aforementioned concerns are likely to limit the downside in crude as
well.
Continued weakness in the dollar is also likely to limit the downside in metals
and oil. The greenback extended to yet another new low for the year today after
the ECB further stoked rate hike expectations this morning. The ECB held steady
on rates, as was widely expected, but Jean-Claude Trichet took a more hawkish
tone in the press conference. Trichet acknowledged that inflation risks were on
the upside, requiring "strong vigilance." He went on to suggest that
a rate hike
in April was not certain, but possible. While Trichet continues to couch
his rhetoric, the sharp intraday rise in the euro clearly shows how the market
is interpreting his comments.
Meanwhile, Fed chairman Bernanke gave no indication in his MPR speeches this
week that the Fed was anywhere close to raising rates. Perhaps this was the
plan all along: Export inflation around the world and then wait out Europe,
make them hike first so that the dollar can collapse and Bernanke can at long
last get the domestic inflation he so desperately desires. It's a dangerous
game though. Not only do we erode global goodwill in creating inflation and
destabilizing economies (and governments) around the world, but investors are
skeptical of Fed assurances that it will be able to contain inflation to target
(around 2%). Barring some miraculous rebound in consumer spending, employment
and housing, it is far more likely that the Fed will keep the liquidity taps
running wide open for too long, rather than too short a time.
Peter Grant is USAGOLD's
resident economist and a well-known analyst globally in the forex and precious
metals markets.
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sell, or the solicitation of an offer to buy or sell any precious metals
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