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Is Gold Correcting? (update 5)

Posted by Adrian on June 4, 2008

The US dollar, which has been so oversold as a currency, has begun it’s climb upward. After Ben Bernanke (Fed Chairman) made recent comments in regard to inflation and stabilizing the currency. This was interpreted by the market that the rate cutting policy will cease, and the Fed will hold rates at the current 2.00% indefinitely.

I personally see this as more of a fear of the USD being unpegged by Middle Eastern currencies, rather than an inflation fear. If the Fed was serious about taking inflation, they would lift rates now. Build the USD back up and oil and other commodities may slightly correct, or come down from their higher price ranges. To what extend the commodity market has become a bubble is a speculative assumption in it’s self. The commodity food markets are due to northern and southern drought (global) , Spain is a good indicator of the the northern global drought and Australia is also a good indicator of the southern global drought. Rice, wheat and other foods – reliant on rainfall and good crop cycles, are now showing signs of scarcity. Oil demand is strong from growing economies such as China and India and output is slowing due to fewer oil fields. So the commodity markets are calculated into the supply and demand formula.

So, it is disputable whether the commodity markets are generally over bought. As we are talking about gold with this post, gold doesn’t look overbought at all (cheap per ounce, comparable with inflation). But from Bernanke’s remarks, in regards to the USD and inflation, gold was slightly sold off in GMT trading – dropping from 896, closing at 881.

In the morbius glass post Is Gold correcting? (update 4) support was set at 836, now set at 844 with resistance now at 902. There appears to be trading range now, in which the markets are trading at, between 939 and 877 on a 1 day platform.

I see gold moving back upward into 890.

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