Gold Fundamentals Remain Sound

While gold fell marginally yesterday on the COMEX, it was up some 1% on the day overall with small gains in Asia and Europe.

Obama’s message of hope for the US economy (while warning that the US economy was “by no means out of the woods just yet”) has been met with indifference in equity markets which are down in Europe this morning. Wall Street is set for a mixed open (Intel’s lack of guidance is making the market nervous) which could see stocks under pressure again which should see gold well supported at these levels.

Gold has risen from some $866/oz to over $896/oz, more than 3% in a few days, but it is too early to say with confidence that the recent sell off is over. The fundamentals remain sound nevertheless and a higher weekly close this week would be technically bullish and could see more of the momentum traders rejoin the party. Also, the precarious position of some of the very large, concentrated short positions must be watched as the threat of a significant short squeeze remains.

While deflation remains the primary macroeconomic threat, quantitative easing, massive bailouts, stimulus and rapidly increasing government deficits will likely lead to significant inflation and or stagflation in the coming months which is positive for gold.

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