Gold Price ($666. oz.)

On a seasonal basis, gold tends to do a fair bit better over
the second half of the year reflecting stronger commercial
demand.

In the interim, gold has lapsed into a $640 - 695 trading
range, and has fallen out of the very sharp uptrend seen
since mid - 2005. The break of trend has been mild, as most
players are attuned to the seasonal pattern. Moreover, there
has to be a contingent of bugs out there who are counting on
the Federal Reserve to cut its Fed Funds target rate and
re-inflate the economy in the hope of calming unsettled
markets and concerns about a loss of economic growth
momentum.

My macroeconomic gold price directional indicator remains
in an uptrend, but is only modestly higher than it was in
mid - 2006, when gold traded around $650 oz. The indicator has
grown more volatile, reflecting a wide ranging oil price over
the same period.

I still have the gold price as overextended on the upside. The
long term price trend going back to 2001 suggests gold should
now trade in a range of $550 - 630 oz., and the macro model
suggests gold belongs in a range of $530 - 540. The macro model
trails the chart range because it has trended up far more
slowly since the end of 2005, as both US monetary liquidity
and the oil price have progressed more modestly since then. In
short, long range inflation stimulus in the US has moderated
substantially in recent years.