Wall Street Journal Article Focuses On Support At $1,000

The article, although bearish in tone, is balanced. It points out that gold has seen support at well above $1,000 so far, prompted in part by physical buying in Asia. More buying for the upcoming Chinese New Year is cited as a reason for further support in the near future.

There are offsetting quotes about the direction gold will take, but two bearish ones are matched with only one that's bullish and another that's neutral. The first bearish opinion comes from the CPM Group:

Carlos Sanchez, associate director of research with commodity research and consultancy CPM Group, said gold may have support at $1,050 and then $1,020 and $1,000. He doesn't believe prices will fall below $1,000 until U.S. interest rates are raised or at least expectations of higher rates increase. Higher interest rates would likely boost the dollar, adding pressure to gold.

The second comes from an analyst with a firm that's actually shorted gold:

"The downward move could carry the market toward the $1,018-$1,033 support range by the end of this month," said MF Global analyst Tom Pawlicki. But he believes that it is too early to look for a break of $1,000 because of bargain hunting amid this price decline.

MF Global entered a short position Wednesday at $1,120 and adjusted its projections for the amount of a price fall to $1,033 from $1,046.

The bullish opinion comes from the CEO of a gold fund, Nick Barisheff of Bullion Management Group. He believes that the current decline is reminiscent of 2008, and gold should resume rising once it's over. The greenback carry trade should be unwound then.


Again, most every eye is on the greenback and its expected performance. One possibility not often mentioned: the carry-trade unwind is already discounting a future Fed rate hike. The main reason given for the greenback's rise once the hike is implemented is the unwinding of the same carry trade: at an ordinary investing level, there isn't much difference income-wise between 0-0.25% and 0.5% (or, for that matter, 0.75%.) Any rate below 1% still grants a low yield.

I may be holding out unwarranted hope, but it is a fact that the coming Fed Funds hike is one of the most anticipated policy shifts I've seen; it's only a question of when. A die-hard contrarian would claim that the Fed won't raise at all until well into 2011.