Gold soars in early 2008, but will it stay lofty?

It’s amazing what can happen in 30 days. In virtually a single month there have been dramatic changes in the world, and in the world markets. Not least of these events has been the change in price of gold. What follows next will be interesting.

Back on December 6th 2007, I stated that oil hitting and exceeding $100 a barrel was imminent. I mentioned that geo-political instability was in the air. I was looking forward to a Fed rate cute, and further trouble in the housing markets. And I mentioned the threat of recession. All of these things I felt were cause for the gold futures hitting $855.

Since that time we have seen oil soar and attain the century mark. Former Prime Minister Bhutto was viciously assassinated in Pakistan, either by Al Quida or the military/government there. The Fed did cut rates and the housing market has slowed down. At the same time, reinsurers for high-risk mortgages have been hit and another round of write-offs seems imminent. Many are starting to talk recession, and gold spot prices have hit in excess of $850 with many calling for a run to $1000.

Sometimes you just hit the bull’s-eye.

So considering all that, and the fact that today is just the 4th day of 2008 what can we expect? How far will those that are rising go? What is holding back gold stocks that have not rallied as gold spot prices have?

Perhaps just time. Even as I write this the Dow Jones is falling some 200 points. The next round of write-offs due to the mortgage crisis has yet to be announced, but I expect that several major banks will exceed expectations by 75% or more. I also expect more banks to announce their own mortgage based problems.

A massive 100-mile and hour winter storm is starting to hit the Northwest coast, potentially dropping as much as 10 feet of snow. As that storm and others travel the nation, heating oil prices are sure to rise, and inflation is probably going to follow suit.

The dollar is getting hit repeatedly, and expectations of good sales numbers from the 4th quarter are unlikely. Expect no help from there.

And Middle East politics is anyone’s guess. Iran may or may not have nuke; Pakistan is still rioting and ready to riot. And we are still fighting Al Quida in Afghanistan, plus the war in Iraq.

Instability has always been good for gold and gold stocks. Demand has always been a solid factor. Right now demand from China and India is surging. Literally everything is in place.

But gold stocks are not gold spot prices. Events across the world and at home don’t cause instantaneous reactions normally. There is always a trickle factor. But it would seem that gold stocks are worthy of a lot of attention. Yet timing is vital. Geo-politics can stabilize quickly. Oil can drop as fast as it has risen. This could be the last of the big winter storms.

I would take a viewpoint similar to Warren Buffett when he recently spoke about China’s stock market. Caution is the key. Timing is everything and being sure often is worth more than rushing in.

Still analyst like John Ing of Maison Placements Canada Inc. are confident,

“It's unquestionably going to be a golden year.”

And 4 well known stocks have already hit 52 week highs. Streettrack Gold Trust, Barrick Gold Corp., Agnico Eagle Mines Ltd., and Goldcorp Inc. all surged.

Maybe JPMorgan analyst Josh Bridges will be right when he stated,

“We feel that we could be beginning to see another period of gold prices outperforming their dollar relationship.”

Just remember that the last time, some 30ish years ago, when gold last broke out it then entered a 20 year bear. And 30 days can make a huge difference.

What's moving gold?

The ripple effect from the mortgage crisis here in America continues to reverberate around the world. As in China and Asia

“With the chance that U.S. markets will be receiving another rate cut by the Federal Reseve, Hong Kong rallied and took much of the Asia markets with it. Even the Chinese banks, which are expected to raise the reserve ratio to a high of 17%, gained with expectation”

the actions by President Bush and the expectations on the Fed have affected gold prices and stocks.

“This re-iterates that in America they will do anything to stop sub-prime. It has put confidence back into the US market, and that is why guys are going out of gold.”

Even with this resurgence in confidence, and the prospect of lower rates in American and subsequently the rest of the world markets, there is still the possibility that a recession is in America’s future.

Several factors remain in the air that will influence the outcome of the economy and the price of gold and gold stocks. Sales for the holiday season, and the amount of discount being provided by retailers, are being watched closely for clues on year end and first quarter corporate numbers. Energy prices, which were recently as high as $100 dollars for a barrel of oil, has helped to put pressure on the economy as well.

“When will oil prices break thru the $100 a barrel mark? That is a question that Europe and America are considering now, even as OPEC has decided to hold production levels steady, and the question of an American recession loom on the horizon.”

Not to mention the predictions of Goldman Sachs

“Goldman Sachs said today that investors should sell gold in 2008 to take advantage of the steadying dollar.”

Yet with all of this gold rose above $800 on Tuesday. To say that speculation is in the air is the least of things. With so many factors inter-related, geo-political unknowns and the impending primary voting on the horizon there is no surprise that February gold futures contracts were recently quoted at $855.

Will the futures contracts be accurate? Will America fall into a recession? Will a Democrat be elected President? No one is quite sure, but the answers will become apparent very soon.