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 Will gold continue to increase ?
Yes. My technical analysis has shown an objective of 440 dollars an ounce for the year 2003. The price will slowly go up to reach this level on a straight-line basis or almost so. That is to say an increase by approximately 100 dollars. This means a profit of 10,000 dollars with an investment of 1,800 US dollars on futures markets: a 550% performance in one year. If you choose to use the lever effect of options (by buying calls 410 and selling calls 440 – meaning a call spread), the potential performance will exceed 1000% at a risk that is totally limited to the premium you have paid for the call spreads. In short, this year again, gold will represent the best stock market speculation.
What do I base my argument on? Only on the chart bellow. After 15 years of experience on the markets, I have become absolutely convinced of one thing: the one and only tool that allows us to foresee the probable evolution of a financial product is the attentive study of its chart without any fundamental or economic consideration whatsoever. Everything is in the price. It is the latter that makes the news not the opposite. I have drawn the probable evolution of gold in the year 2003. Of course this is just a forecast that can be invalidated at any time by an unexpected chart configuration. However when we see the chart of gold in the coming months, we get a very good idea of the increase potential of this precious metal. Obviously there are other fundamental reasons that explain this bullish movement.
Fundamental analysis :
Gold physical market is completely unbalanced with an annual deficit of 1,500 tons: global gold production is around 2,500 tons per year whereas demand from all sources exceeds 4,000 tons per year. Up to now, some sales by central banks (300 - 400 tons), scrap gold recovery (500 tons), and leasing from banks to producers (600 tons) have managed to cover this deficit. From now on, this will be difficult, not to say impossible in the coming years.
1- Gold mining production is trending downwards because, with an average international cost of 240 US$ an ounce (whereas the present cost is around 270 US$), very few mines will manage to continue to produce profitably.
2- Scrap gold recovery has also been decreasing since the Asian crisis. Would anyone sell their gold at 270 US$ if they have bought it at 350 or 400 US$?.
3- Central banks have started to reduce their gold sales because they realise that they possess a foreign currency reserve that is undervalued.
4- Leasing from central banks is also more and more decreasing because they can no longer risk to lend a gold that is very likely to be highly valorized in a near future.
In short, at the level of the physical trade of gold, there will be an imbalance between an expanding demand and a decreasing supply, a situation which will drive gold price up.
B. Psychological analysis :
War on Iraq is inescapable and when the future is uncertain and worrying, financial markets operators try to diversify their portfolio. Priority will be given to the control of risk this time rather than the search for performance. In this context, gold will naturally recover its function as the asset of last resort. We will certainly see many portfolio managers take more or less solid positions on gold values.
The United States’ debt represents 25% of their GDP, which is too much. In less than 5 years, this debt will represent about 50% of the GDP! Then, those who have confidently lent money to the world’s biggest financial institution will start to worry. The American Treasury bonds have attracted billions of dollars from all over the world, thus ousting gold from its position as a safe and profitable investment. Today, however, it seems that the latter is recovering its position of yesteryear with still more power.
Today nothing is scarcer than gold and nothing is more abundant than the dollar. This imbalance has been lasting for about 20 years but is now getting corrected in a more or less perceptible way. In fact beyond all this, there exists a universal rule that imposes the shortage = value equation on any political, financial or economic will.
Since the dollar is at the top of its real value and gold at the bottom of its real value, this tendency will reverse in the coming years; a reversal that many experts have been expecting since many years. Why the year 2003 will be the best year? Because the market can no longer continue like this now; this is the maximum it can do.
Gold Intermarket analysis
www.belkhayate.com
Moustafa Belkhayate
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