Gold outlook in question

The gold price is holding reasonably well at the moment. The metal found support at $890/oz. I do however believe that there is the prospect of gold falling back to $$700-750/oz, though by no means is it probable.
The positive for gold is the extent to which central banks are relying on fiat currency to support their economies. One could be forgiven for thinking that we are over the bad news, but in fact the USA is entering a period of ARM re-sets. Clearly low interest rates will help people survive this period. Another factor likely to support commodity countries like Australia, Canada, is the prospect of China buying up commodities. This of course will make any recession shallower, but it will also make it longer. One would want to retain some exposure to gold, though at this point I would only make that exposure emerging stocks with resource upside, rather than the gold producers trading as a yield proposition. For metal traders, I'd be looking for confirmation of trend before I enter the market, as there is grounds for some rapid moves.
We might yet see gold test its previous high of $990/oz, though I see more consolidation for now, with the prospect of a fall back to $750/oz. I would rank the swine flu as an issue, though of course its hard to say whether this will evolve into something more serious. It would seem inevitable that there will be a breakout as long as developing countries have dodgy animal husbandry standards. A major pandemic would spell a much deeper recession, and a run on banks. I think this would be a negative for gold because its not inflationary, but just a crisis of confidence which will undermine consumer spending. It will briefly cause the market to spike as people buy more food, and we might see some evidence of that in the current quarter. A pandemic is more an issue of perceptions since we need only hide in our houses for a week. But will we all be so compliant and organised. It remains to be seen if this will be a momumental blunder.

----------------------------------------------
Andrew Sheldon www.sheldonthinks.com