Gold Price -- A Less Glib And Flippant View

Yesterday, I had some fun with the wilder side of the stories
surrounding the recent price action of oil and gold. Today,
I look at the more normal measures for gold.

The weekly macroeconomic price directional for gold continues
to track the ups and downs of the gold market rather well. The
macro indicator hit a new all-time high this week reflecting
the powerful surge underway in the oil price. For 2007 to date,
better than 90% of the move up in the macro indicator reflects
the combine of oil and industrial commodities prices -- elementary
building blocks of inflation.

Over the long term, a one point move in the indicator has translated
into a $7.50 oz move in the price of gold. However, since the end of
2005, a point move in the macro indicator has translated into roughly a
$25. oz move for gold. That's a dramatic increase in gold's volatility
relative to the indicator and it reflects a greater speculative
interest in the metal coupled with the deployment of more borrowed
or leveraged money moving into the market. Much the same can be said
for the oil price.

Prior to the speculative jump in the gold price in early 2006, it was
tracking a 13.6% annual return trend. That's very good relative to the
inflation that developed over the period. With the price channel
established over 2000 - 2005, gold would close out the year at around
$625. But gold at the current $788 is well above that level and is
rapidly getting extended relative to the speculative leg in place since
early 2006.

I'll keep reporting on gold, but the action is too zippy for me.