Gold Comment ($660oz.)

Gold has entered its strong seasonal period to reflect
higher commercial demand for the forthcoming holiday
and South Asia wedding seasons.

My macroeconomic gold price indicator, which went flat
for several weeks right after gold came off its May, '06
parabolic top, is again trending up, albeit modestly.
This model suggests a fair value for gold of $515 - 520oz.
With the global economy to slow further, the best bet
to keep the indicator trending up in the short run is
if oil, also in a seasonally strong period, continues to
advance.

In a 7/6/06 note on gold, I mentioned that gold would be very
overbought if it rose from its then current price of $633 up
to the $665 - 670 area. It did, and the profit takers came
in with a vengeance when the overbought was achieved.

With gold now in the $660 range on a rising 200 day M/A, the
upside limit goes to $685 - 690. First of course, gold would
have to push through last resistance up around $670.

Now that gold is off that parabolic run, traders are resorting
to more normal technical disciplines. This factor plus the
current elevated price of gold relative to fundamentals suggests
continued price volatility likely lies ahead.