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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Thursday, December 13, 2012

Gold Price

The gold price pulled out of a mild bear market in June of this year following heavy hints
from Fed chair Bernanke of further QE to come and ECB chair Draghi who set out open
ended liquidity back up support for seriously troubled EZ members.

My monetary and economic indicators remain negative for the gold price, but the monetary
component will shift positive in 2013 as the Fed re-opens the monetary tap. The very clear
loss  of growth momentum for the industrial side of the global economy has yet to reverse to
the upside.

With the fiscal cliff issue unresolved, the bugz have been treading lightly with gold, concerned
that possible significant austerity in the US could well have negative global repercussions.
The bugz have merely joined large segments of the capital markets that are on cliff watch.

Of particular interest with gold is the Fed's idea that QE 4 could be suspended and, possibly,
temporarily reversed if US inflation accelerates markedly. This control for the new policy
adds risk for QE - based speculators in PMs and commodities. As well, although there is
substantial slack in the US labor market, such may not be the case with regard to plant
capacity utilization. In the depths of the recent recession, the US operating rate fell to 68%,
a level not seen except before WW 2. Capacity use has recovered to around the 78% area
since, and once it crosses 80%, it is wise to start looking for a cyclical and not merely
commodities driven acceleration of inflation. Since capacity growth is exceptionally low
now, the US economy could get into a tighter capacity utilization mode if there is a major
positive response by the economy to the new QE program. The Fed is now freer to respond
to that and that could move gold fanciers into a riskier position.

In the world of the gold bugz, much is made of the "destruction" of currency value and the
presumed very large inflation potential of the Fed's QE programs. Now, I have a much
broader view of money and credit, and by my calculation, all the Fed has done so far
with the $2 tril. it has added to its balance sheet is replace most of the slightly more than
$2 tril. in short term credit that has evaporated over the 2007 - 12 period. Had the Fed
not done that, some of us would be selling apples dirt cheap to others. But, by current
convention, the Fed's QE actions are seen far differently by many.

I have linked to a gold price chart and you will note there is short term price support at $1660
and significant support at $1550 oz. Clearly evident resistance is at $1800. Gold Price Chart

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