Precious Metals Retreat After Reaching 2-Month Highs

January 12, 2009

Today the price of gold slid under $ 820 /oz. confirming our forecast in our most recent commentary. Accordingly, RBY's price dipped below $1.00 signaling a buying opportunity is imminent. We'll allow the dust to clear and wait for a clear short-term trend reversal before taking action.

Over the past 2 weeks, the price of gold rose close to $ 900 /oz., silver approached $ 12 /oz., and platinum signaled a clear trend reversal when it hit 2-month highs around $ 1,000 /oz. In the same period of time, we've received reports on recent gold trading trends and inflationary conditions suggesting that the long-term precious metals upwards trend will continue:

- Gold trading surged 20% as distrust in banks and economic turmoil persist.

- Australia's Perth Mint bullion sales rose an astounding 194% in December 2008.

- The Bank of England cut the benchmark interest rate to its lowest level in history, 1.5%.

We expect precious metals and mining stocks prices to rebound within the next few trading days. Look for cyclical highs after next week as well as a major trend reversal near January 26. Further evidence of the advance in prices is seen in the chart below, which shows gold ounces priced in British pounds. As the pound has weakened against the dollar in 2008, the price of gold in pounds has soared to all-time highs. As the tide begins to turn yet again, we're expecting commodities prices to rebound--this time in dollar terms:

goldpounds.png