Inflection Point

Gold Newsletter (03/27/2009)
"Despite all the roadblocks thrown in front of it, gold burst higher on February 10, breaking through the $930 barrier and heading straight toward $1,000.

All of a sudden, it seemed that investors across the globe couldn't get enough gold. Nearly every analyst brought onto CNBC was asked about the metal's prospects, and most were bullish. Gold hitting $1,000 was seemingly regarded as a fait accompli, even when the metal was $40 away from that mark.

With such a bullish chorus behind it, that key $1,000 level became a self-fulfilling prophecy that was, well. . .fulfilled. Or at least for a moment or two.

But, as I predicted this time - and every time that gold has approached a 'big number' over the past seven years - that level wouldn't hold. In most cases, gold seems to make a stupendous effort to clear these big hurdles, and then falls back as buying is exhausted and profit-taking rushes in.

That's precisely what occurred in this case, as gold fell back toward the beginning levels of its February run.

Interestingly, though, gold had been accompanied on this furious rally by the dollar. In other words, the metal wasn't rallying out of fear of monetary inflation/dollar depreciation. . .but rather for safe haven reasons.

Undoubtedly, the spike was partly fueled by short-covering from the large commercials who had been piling up bets against higher prices. But at its core, everything we saw during the late stages of the rally, from near-panicked demand for the dollar and gold to sell-offs in stocks and base metals, resulted from a rush to safe havens."

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