Resilience of Gold

The precious metals market in the early part of 2007 took an expected hit. I've talked about this in past posts. This is regards to the fact that after the May 2006 high, the gold market still needed to kick out all excess liquidity before a major breakout. Well the correction in the market has so far been pretty minor. The individuals selling physical, in preparation for a downfall in the price of gold, have taken place. So what!

Let's talk about some news that is quite bullish regarding precious metals. Oil has dropped and dropped hard as I predicted. It has experienced about a 13% decline down to $49.90 /barrel. It might still drop a little more, it might not, but I do believe the bottom is near. What happened to gold during this period? I would like to talk about the historical correlation between the two. Historically, gold and oil work with a positive correlation, meaning, when oil goes up gold increases as well. Well, gold held strong during this drop and even increased slightly.

Another positive indicator for the precious metals market is in regards to the U.S. dollar. The U.S. dollar index has experienced about a 2% rise in value. This is a result of a couple items. First is the above mentioned, oil. The decrease in the price of oil is great for the U.S. dollar. Another aspect that I have mentioned in previous posts is the resistance point of 80 regarding the U.S. dollar index. I've discussed how there will be several attempts at breaking this barrier without success. Each time the index nears 80 it responds with a sharp increase. Side note: when we break that barrier the decline in the value of the dollar will be fast, dramatic, and historic.

Conclusion: The value of gold has hung around and been quite resilient against low oil prices, the rise in value of the U.S. dollar, and the premature selling off of precious metals in preparation for a sharp downfall that never quite panned out. So what happens when oil prices start to rise and the U.S. dollar starts to fall? You can imagine. It's going to be the equivalent of throwing gas on the fire. Gold will go parabolic, and all the individuals who sold short will be looking to get back in the precious metals market, fueling the fire even more. Buy now! It's still cheap, and I still hold strong to gold/silver hitting record highs this year.