GOLD

Very interesting action in gold this week. In spite of higher bond yields, lower oil, and a stronger dollar, all traditionally, bearish for gold, bullion kept marching higher. The inflation numbers both PPI and CPI were also pretty good with better numbers to come now that energy prices are receding. BCA research has a good analysis of this on their website today. That's not bullish either, so what's driving the price?

Kitco.com has the World Gold Council report for last quarter on their site and it says that while physical demand stayed strong especially in Asia and the Middle East, supply grew modestly as well. The biggest swing factor was increased investment demand from the growth in ETF's. So why the big rush into them now, after all they have been around awhile. GLD celebrated it's one year anniversary this week.
My take is that you may have several bearish factors mentioned above coming to and end. Oil may find support here as it sits on its 50day moving average and cold weather has begun. Bond yields fell after hitting resistance at close to one year highs and their 200 day moving avg. They also may not go higher again if inflation has indeed peaked and the economy slows. Finally, the dollar is testing resistance and may soon begin to fall. The ECB is talking about hiking rates today. That would narrow the interest rate spread currently in favor of the dollar. Also very importantly, the U.S. this week continues to press it's beggar thy neighbor polices, by pushing for a debasement of its currency. First, Greenspan in his latest speech made it explicit that a much weaker currency would have to be a large part of the solution of solving our huge current account deficit. Secondly, tomorrow, President Bush is again going to try to cajole China to revalue against us. In effect, you have the two most important men in the country, telling all the worldwide dollar holders, look out below. No wonder Russia, Argentina, and who knows who else, maybe China, want to double their Gold reserves.