Charts vs. Fundamentals: How High Can Gold Go? (GG, ZLC, GLD, GDX, ABX)

This morning’s move in gold may have seemed like an anomaly as gold briefly traded up over $970.00 per ounce.  The shiny yellow stuff rose $2.28 at $964.78 as of 10:42 AM EST.    What is interesting is how the companies and instruments around the shiny metal have been trading and what they have been reporting.  Gold Fields (NYSE: GG), Zale Corp. (NYSE: ZLC), SPDR Gold Shares (NYSE: GLD), Market Vectors Gold Miners ETF (NYSE: GDX), and Barrick Gold Corporation (NYSE: ABX) are all of focus and interest here.

One of our affiliates has run a chart based audio visual analysis with the expectation that next week will be a solid week in gold and a note that we could pass the $1,000.00 mark.

Gold Fields (NYSE: GG) of South Africa reported that its gold production in the last quarter rose 4.7% from last year to 906,000 ounces.  But the company also noted that output for the year ending June 30 fell to 3.41 million ounces from 3.64 million ounces a year ago.  The company showed a net loss of 293 million Rand, down from a profit of 843 million Rand a year ago.  For the June 30 year-end,  its net profit was 1.54 billion Rand, down from a 4.46 billion Rand profit the year before.

We also saw that jewelry retailer Zale Corp. (NYSE: ZLC) has closed 118 stores in the fiscal fourth quarter due to underperformance.  That won’t be enough to influence any major amount of gold demand, but it is a continued sign that the jewelry market is probably not screaming back higher as the economy tries to stabilize.

SPDR Gold Shares (NYSE: GLD) represents a massive wild card for the price of Gold.  If you compare its $33.6 billion market cap to central banks, the GLD is one of the few largest holders of bullion in the entire world. The reason we call this a wild card is that the size could come under some limitation in 2010.  The CFTC is going after the energy market speculation to keep prices from getting out of control and is in the process of limiting how much any speculator can ultimately hold.  Ask yourself a simple question.  If they can limit speculation sizes of instruments around oil and gas to keep speculators from running prices endlessly, what are the odds that metals will be the next target?  There are already some limits in soft commodity positions.  We view this as a real possibility in 2010, and this could potentially turn the GLD into a closed-end fund structure more than an open-ended ETF that can grow endlessly.

The Market Vectors Gold Miners ETF (NYSE: GDX) will be the one to watch if the GLD is regulated in size.  This one tracks the miners themselves, and its market cap is roughly $4.3 billion now.  As far as how that compares, Barrick Gold Corporation (NYSE: ABX) is the largest component with a 10.9% weighting of this ETF and its market cap is roughly $31.5 billion.

Traders are watching gold, particularly since it has been underperforming compared to silver and copper in recent days.

JON C. OGG
August 6, 2009