Will the Federal Reserve stop the move in gold markets

Gold has hit $921 and the U.S. House of Representatives has passed a $146 billion stimulus package. The Fed is set to cut rates another .50 basis points, or so the world hopes, and financials are rising in the stock market.

So the run in gold and gold stocks is over? Not necessarily.

The fact is that little has changed. The mortgage crisis still has at least one more quarter to go. Oil may not be at the record levels set recently, but it is far above year ago levels. The cost of heating and gasoline are hitting the pockets hard, and the economy is slowing down causing fears of job loss. Demand is still high in China and India, and the political outlook in the world is no less volatile than it has been for years. And a recent power outage in South Africa looks like it will cause even more tightening of supplies.

In the most optimistic outlook, the rate cuts will not take a hold until late in the 3rd quarter at the earliest. Companies and individuals are now looking to pay off debt and not expand. The stimulus package will likely fail as many Americans will use the funds that will come in the late spring or summer to shore up debts and bills rather than going on a spending spree. And all this is just in America.

That also assumes that oil stays at current levels, no additional political instability, the mortgage crisis ends completely in this quarter, and the world economies have no surprises. It also assumes that new housing sales pick up from the 28 year low that was just broken, and a return to mid 1990’s or 2000 levels. How likely is that?

I expect that analysts are going to cut production rates across the board for the South African gold miners, and slash quarterly and year expectations. [Already gold miners like AngloGold Ashanti, Gold Fields and Harmony Gold have had thier share prices hit] Miners in other parts of the world should get a boost if new mines come on-line during the potential 6 weeks that South Africa is down, like Goldnev Resources Inc which just had positive results on recent core drilling tests.

So a glut in the gold market is not going to happen any time soon. Nor is political stability a reality. Oil is high, and the U.S. economy is lagging. And this says nothing of how the Dollar is valued versus the world currencies.

Given all this, do you think that calls for gold at $1000 just a week ago are inflated? Do you think that gold stocks have hit the wall of their appreciation?

All stock markets, all financial markets, move on emotion first. That’s given. And few things are more emotional that 1.25 basis point moves by the Fed in a week. But fundamental facts of the markets always come to fore and correct the emotion. To me, $1000 gold, and higher gold stocks across the world, is as fundamentally sound today as when I discussed it earlier this month and in December of 2007.

But then again I’m not a specialist. [You might want to look at what the one of the specialist – Goldman Sachs - had to say back in the ancient time of November 29, 2007 though] I suppose only time, demand, and investors will show what is the right view.