Economy Weaken - Gold Risesby Joe Battaglia
Posted: January 29, 2009
After a nice 200-point rally yesterday, the Dow has given up 120 points of that rally in early trading. The weakness in the equity market is due to information coming out that suggests the economy is continuing to weaken and that the worst in the economic news maybe yet to come. Concerns about economic weakness are also putting some pressure on the gold market, which has been overbought and due for a corrective process. While gold is lower this morning it is still above the significant $875 support level and should complete this period of consolidation by the end of the week.
Analysts have rated gold as a significant buying opportunity. Twenty-one out of thirty of the most prominent precious metal analysts have voted gold as a "buy", which sets a record. David Einhorn, an extremely prominent fund manager said he is buying gold for his fund and that gold is a tremendous buying opportunity. He said gold is in a major bull market and there are expectations for dramatically higher price levels. This was reported on CNBC and Bloomberg this morning.
While gold started the day down about $6, it turned around and moved into positive territory and is currently trading up $8 on what is being referred to as a possible short squeeze. Silver is also in positive territory recovering from a dip below $12. MineWeb is finding huge traction with money managers. Analysts told Dow Jones Wire Service that fund buying may have forced shorts to cover while currency and oil markets haven't sharply changed direction. They said: "Someone's come in and squeezed people who have gone short in the past couple of days". They also said: "The rally could drive it (meaning gold) above $900 an ounce".
Gold continues to present an excellent buying opportunity. Once it rallies again above the $900 level, it will likely move up to test resistance in the $930 zone. If it does that and breaks out, it will be on its way to the previous record high.
The wire services also noted there is some safe haven buying coming in as equities weaken today and Jim Steele with HSBC Bank said: "I think the down side is limited as well. There is enough safe haven buying to press the market higher in the near term." On balance, this appears to be a bullish outlook for the gold market. The fact that a short squeeze is developing is a constructive sign and is likely to promote further purchases of gold, not just to cover the shorts, but also to go long in this market. Gold is up aggressively even though the dollar is up 20 basis points at 84.87 and oil is down $1.06 at $41.11 a barrel.