The gold barrier

COMMODITY WATCH

Though gold has crossed the $800 mark on a few days, it has not been able to sustain those levels.

The last time we wrote on gold was on October 9 where we talked about the MCX gold indicator. At that time, international gold prices were making new highs while Indian gold prices did not keep pace.

The anticipated and esoteric Fibonacci confluence we mentioned that time with price targets hitting resistance at $770 and prices struggling at the psychological $800 mark did work as anticipated with gold closing above $800 just three weeks out of the last ten weeks. And if this was not enough, we did not have even one monthly closing since October above $800.

A traditional metal analyst might call it a magical coincidence, but if such coincidences saves us time watching the Fed, inflation, economic worries, Italian gold consumption, dollar weakening and its effect on the global gold market, and all that demand-supply cause analysis, it is worth it.

We have highlighted on prior occasions that sideways markets lead to contradicting causal explanations viz prices can go up because of factor A, but factor B might still cause some supply pressures.

And when the sideways action ends after the initial burst up, the news realigns itself to the price actions explaining why the factor A interpretation was right in the first place.

Coming back to the year-end perspective on gold, thou we see a lot of bottoming action at current levels, I consider a sizeable breakout about $800 still a low probability scenario for 2007.

As most momentum indicators on weekly time frame are still in the process of bottoming. A break below $770 might just increase some supply pressure.

We are no gold bears and are looking up to $1,000 soon and much beyond $1,000 in the years to come, but timing for us remains more critical and understanding that bottoming like sideways action is never a few days' affair.

On the oil front, we saved some more valuable time when we discussed that oil at $100 wasn't going to be easy in our October 22 column.

It's more than 45 days and a break above $100 still remains a challenge. We will discuss oil in more detail next time, while we watch causal extrapolations about where gold or oil might head in the next few days or weeks.

Contributed by Orpheus Capitals, Global Alternative Research