A Double Edged Sword

(This excerpt followed an earlier section that outlined our reasons for continued bearishness about the US Dollar. We have long considered the fate of the Dollar a key to the gold market and were one of the first publications to stress the correlation and turned bullish on the Gold market again in 2001 when the greenback began to top - Eds.) Gold made another seven year high as this was being written. Traders clearly don't think Wall St. can save the Dollar, and they see the greenback losing more value. This thinking flowed through into gold stocks, with many reaching for their 52-week highs again in recent days. We've mentioned in the past that our next target is $411, the high of the last cycle. Exceeding that price convincingly would drive home the point (excuse the use of this old Silicon Valley bromide) that "it's different this time". We've mentioned in the past that our next target is $411, the high of the last cycle. Exceeding that price convincingly would drive home the point (excuse the use of this old Silicon Valley bromide) that "it's different this time". Our expectation is that gold will soon see the high side of $400. On doing that there will a run to the $411 level, though it may consolidate first. That will likely be followed by a period of consolidation as a new base is built in the $395-400 range, flowed by a more sustained upward lift through the $411 level and beyond. Our call early this year was for Gold to see $400 by year-end, and that still holds. The timing of a sustained move through the $411 level is a bit more uncertain but we think it's likely to happen before the end of Q1 2004. As always, especially with producers, days of weakness and consolidation are the best times to be putting bids in. The Dollar is looking very weak technically and that might speed up a move to a new high. We noted when gold first moved through $380, that it might take some backing and filling for the move to be confirmed and the same holds true of the $400-411 range. That is all to the good. We are much happier seeing continued higher base building than a speculative blow off. It's more solid evidence that the run in the gold price is far from over. The Dollar has been the biggest factor in the rising gold price, though the change in market psychology that made hedging a dirty word shouldn't be forgotten. This currency shift has not been a boon for all, however, and the effects are very uneven. If you are trading gold producers its critical to understand the effect of local currency on costs. The four charts above show the gold price since the start of 2000 in US Dollar, Euro, Rand and Australian Dollar terms. The Charts are courtesy of the World Gold Council site, www.gold.org, and an excellent all around reference for those interested in all things gold. The top chart is familiar to you all, showing the price of gold in its' "home" currency, the Dollar. We haven't included a chart showing the Gold price in Canadian Dollars, but the $AUS chart is a pretty good proxy for it. If one weren't familiar with the effect of home currencies on gold prices it would be easy to believe the four charts referred to different commodities. The charts give you some good insight to the activities of gold producers in these different areas, as well as the waxing and waning of investment flows in to the sector. The Euro chart shows a remarkably flat performance, though there have been a couple of periods of strong upwards moves, usually curtailed when the Euro started moving against the Dollar, reducing the effect of earlier gold price increases. The chart shows positive movement overall, with an 18% gain in the gold price in Euro terms. The big gains came in the 2001-mid 2002 period when the gold price was starting to move and the Euro was still basing in the $0.85-90 range. Not coincidentally, this was also the period when many European funds rediscovered the gold market. The Australian Dollar and SA Rand charts are a different story. Both of these "producer" currencies have seen huge gains...

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