Where is gold going?

I begin this blog post with the graphic I used in the last post. It is the gold price as seen on June 14, which showed a wedge formation pointing sharply up. In fact, highs in gold prices had become steady, while lows were getting higher. This meant a breakout from that pattern by early July.

The next graph shows the actual breakout on June 18. Gold set a new high in US dollars and then sold off a few dollars.

There are four questions that are of interest: 1. what is driving the gold price? 2. how high will it go this year? 3. what happens to gold miners as gold prices rise? and what is the estimated high in gold?

The immediate answer to the first question is shown in graphic three from the top. Physical gold purchase (non-ETF) as well as by Exchange Traded Funds have risen sharply through 2009 and are continuing to rise this year as well. Last year, the total world production of gold was 2,524 metric tons and 3,386 metric tons were sold to known purchasers. Part of China's purchases are not recorded. Recent purchases by Exchange Traded Funds (ETFs) are continuing to rise: Swiss Gold Shares ($500M) are rising fastest; Central Gold Trust of Canada purchased 6,485 ozes, Scott Physical Gold Trust purchased 230,000 ozes SPDR Gold Trust (GLD) intends to purchase 22.7 million ozes. While purchases are increasing, world production of gold is dropping.

Another reason for the rise in gold price is the financial turmoil in Europe and the US. The Obama regime is intent on destroying Capitalism by destroying the banks and the US economy.

How high will gold go this year? Experts I consult forecast a high of $1,350, a modest sum considering the ultimate high in this bull market, which is pegged in excess of $5,000/oz at the end of the mania stage.

The next graph compares GLD (green), HUI (the gold miner basket stocks, blue) and the S&P 500 (red). We note that during May, gold miners took it on the chin while recently, they followed the S&P 500. Sometime in the future, gold mining stocks will take off and increase in price faster than GLD. When? Not known now.

Finally, a number of the world's powers are trying to produce a reserve currency to replace the dollar. I show the coin produced by Russia and the nick is my doing introduced by a mistake in copying. The Obama regime is printing money by the trillions and keeps inflation down by collapsing the economy via deflation. This may become the reason that ultimately pushes the dollar into a free fall and sets gold on a course that will push it to $6,000/oz. Jimmy Carter days are back.