Monday, October 26, 2009

Gold Trying to Consolidate?

The price of physical gold has hovered around $1050 per ounce for the past 2 weeks. The big question would be, "Where is gold going to go from here?" Of course, it is anybody's guess, but let's look at a few of the factors that might provide some indication as to what the next step might be.

1. Economy not getting markedly better

The economy is still in danger, and I don't see it improving significantly any time in the near future. I suspect there will likely be additional stimulus that might be required if the economy is to grow again. This economic weakness and the potential need for stimulus will continue to put pressure on the dollar which is favorable for gold.

2. Commercial real estate risk

There has been lots of talk about risks in commercial real estate. The general impression is that the commercial real estate market will start seeing increasing levels of default as the consumer continues to reign in spending. Consumer spending may not continue to decrease, but I sure don't see it increasing any time soon. This economic crisis has been more severe than most of us have seen in a lifetime. I am trying to minimize my spending since I know that my taxes and education costs will continue to increase. I will be trying to make my cars last 6 or 7 years instead of replacing them at 4 or 5.

3. Season of the year

This is typically a strong season for gold since the Indian harvest and wedding seasons occur at this time of the year. However, there has been a drought in India this year, and I suspect that farmers will not have a lot of money that they will need to exchange into gold. The high prices will also suppress demand. Normally, you would expect gold to be strong from November through February or March. It might be tough to accomplish this year.

When I look at all of these factors and more, I suspect that some will pull gold up and some down. The net effect is that I see gold consolidating and trading in a range between $1000 (possibly $980) and $1070 for the next several months. Of course, I could be wrong. I am surprised that it has been as stable as it has been over the past few weeks. In the meantime, continue to acquire funds that can be used to invest in gold and gold shares in the future.

Until next time--Keep it REAL!

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