GOLD - REACTING TO THE CREDIT CRISIS

The Bull market in Gold continues, and prices are nowhere near the record highs of $850 in 1980.

Using the Inflation calculator of the U.S. Department of Labor (Bureau of Labor Statistics),

$ 850 in 1980 has the same buying power as $2,259.99 in 2008.

http://data.bls.gov/cgi-bin/cpicalc.pl

Expect more volatility next week, both in Gold and the Equity markets. For now Gold needs to consolidate in the mid 800's for a while longer, before its next upmove. It is above its crucial long term support - the 300 Day MA currently at $840.67

GOLD - THE FLIGHT 2 SAFETY

For the past few days, I have been puzzled at the movements in the GOLD price, given all the turmoil in global financial markets. Although I added to my gold positions yesterday, I thought I would delay todays purchase until tomorrow, expecting a better price!!!!!!Well I just missed a 11 % rally in the precious metal!!!!!!!
BY A SINGLE TRADING SESSION !!!!!!!!!!!!!

Although prices were pretty flat through the Indian trading session ( despite news of the AIG Bailout which came in about mid day IST), in the US trading session, Gold rose sharply as fears of further bankruptcies across global financial firms triggered a flight to safety!!!

I'm not sure how much short covering contributed to today's rally, but things are getting pretty serious. Panics of this magnitude are extremely dangerous, as solvent firms can get dragged down by the overleveraged collapsing ones.

The USD rally over the past week appears to have stalled, but I would not be surprised to see gold rally, even as the USD holds out for a while longer, as the selloff across various asset classes continues.

Investment bank CEO's may blame the short sellers and try to calm panic stricken investors, but it appears that the overleveraged CDO, CDS mess is derailing the US economy at the moment.

Interesting times...........watch this space!

GOLD & ITS 300 DAY MA !!

Gold continues to be extremely volatile, as the EURO and Crude Oil prices continue to dictate its direction in the short term.
The Fed cannot afford another rate cut (remember the Strong USD campaign), but any rate hike to fight inflation will trigger further sell offs in the already jittery equity markets.

As you can see, the 300 day MA has been a very consistent and reliable support for Gold since early 2001.

( The Chart below was compiled with data from my friend Stamatis Leontsinis!)

How LOW can Gold go???
Looking to GOLD's 300 day MA , I do not expect any downside below the the $800-$825 levels. I would buy Gold on days when it declines significantly, like the recent decline a week ago when it fell by over $20 in a single session.

The 300 day MA is at the $800 level currently. Over the next couple of months, volatility in Crude oil prices and any pullbacks in the Euro will lead to increased volatility in Gold. Use the declines to buy!

Remember, Gold loves stagflationary environments: Slowing Growth & rising Inflation.
High oil prices and High food prices are contributing to rapid inflation the world over
US Housing, US Financials and the US Auto sector have really struggled in the first half of 2008. These sectors are going to contribute to deteriorating employment numbers in the second half.
In the mean time I will add to Gold positions on declines.