Commodities | Jul 04 2006
By Greg Peel
Two weeks ago FN Arena noted that gold exchange-traded fund (ETF) buying had begun to return once it appeared a low had been hit in the gold price around the US$550/oz level. As ETF’s provided a major impetus in the rally to US$775/oz, this little change of heart proved significant.
Gold is a traditional hedge against inflation, but if the Fed remained hawkish and flagged further rate hikes beyond June then the US dollar would rally and the gold price would struggle. To everyone’s relief, the Fed alluded to the end of tightening for now.
This was met with an enormous surge in EFT buying, as US based trading guru Dennis Gartman reports. Volume exploded on the Friday after the FOMC meeting, which is no doubt why the price did not bother to do any work around the US$600/oz level but just sailed on through. As the price rose, volumes subsided, suggesting for now that buyers are set in the hope we set off towards US$800/oz once more.
Dennis Gartman called the bottom, and even went as far to say that it is a low that will prove "inviolate". Gartman is long gold and happy for now, but is expecting a consolidation of this last spike at some stage. When consolidation occurs (ie a bit of a pullback) he intends to buy again. Perhaps any ETF hopefuls still undecided will do the same.