Gold -- $608 oz.

Gold macro fundamentals turned up sharply as early as 1998
and were strong through 2005, save for the 2001-2002
recession period. The main factor has been the inflationary
growth of central bank credit, followed by the price of oil
which rose an unexpectedly strong 65% since the end of 2004.
I believe a temporary sharp jump in Federal Reserve Credit in
the wake of Hurricanes Katrina and Rita helped spark the recent
gold mania. Without good productivity growth in the US, China
and Japan during the current global economic expansion, US
CPI readings could be steady at 4.5% instead of the 3.5%
average.

My gold macro indicators have started slowing in 2006, and
have not had anywhere near the momentum to support the parabolic
run in the gold price up to $732 oz. in May. As expected over a
$100 per oz has come off the gold price since then. The Fed
presently plans rather moderate liquidity growth, and global
system liquidity growth could be further constrained by
evidently growing liquidity tightness in Japan and the ECU.
Moreover, the US trade deficit has recently flattened out, which
crimps liquidity flows in emerging economies especially.

A major issue in the US concerns the continuing strong growth of
real estate lending. It should start slowing soon as housing, the
major sector, has been weakening. BUT, it has not shown up yet.
This keeps credit driven liquidity strong. The Fed has been allowing
basic monetary liquidity to inch up to counter an expected slowing
of the broader credit driven liquidity. This may be smart policy as
it will allow a smoother transition to a milder Fed policy once
private sector credit reacts to a slowing US economy. The growth of
the broad money supply has supported gold, but this may end as the
economy loses some more momentum.

On balance, the macro fundamentals suggest an eventual further retreat
for gold, perhaps down to the $525 - 550 oz. range. This may not
come immediately as gold has found trend support at $608 and is
heavily oversold short term. Moreover the hurricane season is here and
resolution of the course of Iran's nuclear fuels program remains
unresolved. Under circumstances of damaging storms and/or a decision
by the UN Security Council to reject Iran's position and impose a
program of economic sanctions, we could easily see spikes in oil
and petrol which might entice the gold players to run the market up
again. Finally, my macro indicators are cyclical and do not cover the
large grain markets. It's quiet there now, but you never know.

A short term bounce in gold is growing overdue. Since the metal has
not tended to make gradual tops or bottoms in this cycle, I have been
using the 5 day M/A against the 10 to tell me when a turn may be at hand.