The $1,000 Gold Call Returns (GLD, GDX, UGL, ABX, HMY)

The commodities call is back on.  It isn’t $100 oil, but it is for $1,000.00 gold.  We have two well respected market technicians calling for higher gold prices.  At 10:12 AM EST,  Spot Gold was trading at $982.34, a change of +$7.78 or +0.80%.  Simultaneously, the SPDR Gold Shares (NYSE: GLD) was up 0.4% at $96.55.  The Market Vectors Gold Miners ETF (NYSE: GDX), which is an ETF full of the top gold mining stocks, is up over 1.5% at $43.15 and has been all over the place this morning.  The Ultra Gold ProShares (NYSE: UGL), which tries to track twice the dollar performance of gold bullion, was up 0.75% at $36.95 on fairly thin volume.  Even Barrick Cold Corporation (NYSE: ABX), one of the largest miners and producers, was up 0.8% at $38.12 on active trading.  Harmony Gold Mining Co. Ltd. (NYSE: HMY) is also up about 2.6% at $10.27, and this is despite J.P. Morgan downgrading this stock this morning to Hold from Buy.

One of our affiliates, INO.com, has an audio/video presentation by Adam Hewison that shows data back to 2001 and using current data to discuss the possibilities of a break-out coming up in the price of spot gold.  This notes how yesterday was a large day and is back up to the resistance line.  He still thinks that the $1,000.00 per ounce mark continues to be the big hurdle but that is possible to see even before the end of the week.

We also saw how Dennis Gartman yesterday was on CNBC talking about gold rallying more in foreign currency markets than the U.S. and he noted how something was going on there… particularly as gold went up the same day the bond market went up.  It seems to Gartman that the vote is a bet on gold but one against the economy.  What is funny is that Gartman thinks that everyone should have exposure to gold, but 2% to 3% of their portfolio or 5% in extreme cases.

And there is more to this yet, particularly as you go into 2010…

There is one notion we would like to convey here that others have not gotten on board with… yet.  What you are seeing in the form of CFTC regulation and curbing the size of speculative pressure in energy markets of oil, natural gas, heating oil, and more is probably not isolated.  Commodities around crops have position limits.  Stocks have limits to the number of stock options contracts (and single stock futures) that is based on a company’s share float.  So, what is the ‘other component of inflation’ that is missing?  Metals are that last component.  The SPDR Gold Shares (NYSE: GLD) has a market cap north of $33 billion, and almost all of that is directly owning gold bullion.  That puts it among the world’s top central banks.

It is easy to make the call here that gold would go higher with the technicians calling for it, and particularly if everyone wants to start an inflation hedge for prices in 2010 and beyond.  But if this breakout does occur, you can expect the CFTC to demand that the SPDR Gold Shares (NYSE: GLD) and possibly other gold ETF/ETN products tracking the shiny yellow stuff to become a smaller percentage of the gold market.  They could cap those share issuances and demand that they sell shares and some gold.  That could turn these into closed-end funds.

Of course now that the stock market has dropped suddenly and as we are getting into one of the lightest trading days of the year ahead of the Labor Day weekend, some of these have come in some.  Our own take is that we’d be looking at the trading next week in gold, stocks, and the dollar before making any major conviction bets on significant market breakouts in any of these.  After about 10:00 AM EST on Friday after everyone has made their unemployment and payrolls data trades, the trading volume is going to dry up massively.

JON C. OGG
SEPTEMBER 3, 2009