Gold rally taking us to new highs

Several months ago we alluded to the current gold recovery that we are seeing. We are looking for gold to challenge its historic high set back in August 2011 of around $1850. We believe that this 'flag structure' is about to see gold rise $600/oz above this previous high, so we are looking for an ultimate price for gold of $2450/oz in the coming year or two.
A lot of rationalisations will be made to justify this price movement, as well as rationalisations to reject it. The most common arguments are:
1. Low mine output - annual mine production is just a small fraction of the amount of gold in existence. Ultimately it is only speculative demand which drives gold prices, relative to supply of course.
2. War in Iran - Really it is only the uncertainty over monetary unit values which drives the demand for gold.    The prospect of war in Iran is only significant if financing war is considered to be a significant cost on society.
3. Interest rates - The low return on bonds and equities is a compelling reason to hold gold; and this is the state of the current market.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Short term upside to gold

You'd have to be a little more positive about gold at these times; principally for 2 reasons:

1. Prospects for ongoing low interest rates

2. Prospects of tensions in Iran, the Straits of Hormuz - as Iran borders the channel through which oil exports flow. This issue is of course escalating because Iran is building a nuclear weapon.

The reality however for gold is that its going to be a short battle, with the US eventually destroying key military capacity, the nuclear facilities, as well as retaining air and sea superiority.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold prices set for another rally

Gold prices have bottomed on Friday, and we have seen a rally of $21/oz in Friday (night) trading in the Comex market. The implication is that gold has found support on its long term uptrend, confirming what we always knew was going to happen; that gold was going to rise to new highs. Our interim target is $2,400, however in the medium term we can probably expect a move to $1800/oz.

There are a number of factors giving strength to gold. The prospect of failing monetary policy demanding any effort by the US and other countries to stimulate demand. There is the prospect of escalating tensions in the Middle East. Oil and gold prices alike are likely to be very strong in the next year.

NZ Property Guide Philippine Real Estate Guide Japan Foreclosed Guide

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

The short term outlook for gold looks much better when you consider that crisis talks with Iran are failing to reach a resolution. Iran has even raised the stakes - it is currently conducting 'war games' in preparation for an attack by the USA/Britain and/or Israel. See this BBC News article.
Iran's hostilities to Israel are well-known. Its leader has long campaigned for the destruction of the Israel state. So what can one make of these preparations - is there going to be a war, or is this or political rhetoric?
There is no possibility of a win by Iran, however it could launch medium range missiles against Israel. The question is whether it would get a chance, and would it take that move. Is a settlement likely? The reality is that a number of Arab states have pushed the West to a critical point. During the early phase these Arab states are emboldened by the appeaser stance of the US and international community.
Does Iran have a right to weapons of mass destruction? After all the US and other countries have that capacity. The difference of course is the politics of the country. The US uses weapons for defense purposes; Iran cannot be trusted to do the same. The reason that Iran cannot be trusted is because it does not respect the freedoms of its own people, so don't expect much compliance with any code of objective law.
Having said that, I think Iran has an idea how far it can push the USA and Israel. I would therefore expect the Iranian government to back down at some point. It is likely that:
1. Iran will back down at the last possible point - as a war is not likely to be popular
2. Iran has a vested interest in preserving hostilities because it keeps oil prices higher. There is a security premium built into oil prices, so Arab states love Iran's actions. They probably joke about it an monthly OPEC meetings.
3. The prospect of war appears to Iranian nationalists, who must be the only group liking the Iranian leader, because of his failed economic policy. In an autocratic state, you can understand a corrupt state wanting money for its centralized coffers rather than any desire to create jobs, so don't expect the Iranian government to care about sanctions. They do however elevate disenchantment with the government because international sanctions are readily identified with the government's economic policy.

The implications for gold are good. In the short term, you can expect a rally in gold; though I would expect gold will fall back once Iran capitulates. This will not be the end of gold however, as there is a greater monetary issue in place. Its unlikely either that an 'Iranian war' will impact on global spending because any sense of fear is likely to die outside of Iran's missile range. One would think the US Defense Dept would be monitoring the movement of Iranian ships. One of course can be skeptical of government department's though. But that extends to the conceptual skills of the Iranian government as well. Its like watching two drunks fighting and wondering who is going to win.
------------------------------------
Andrew Sheldon www.sheldonthinks.com