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Safe Money Report

April 16, 2001

Gold is Down, But Not Out

Larry Edelson, Safe Money's resident gold expert, weighs in with his thoughts on gold:

The gold market has an uncanny way of faking out most investors. It sits idle for periods of time; then explodes upwards, covering more ground in a few days than most markets cover in a year.

Right now, gold is doing exactly that - sitting idle and trying the patience of the staunchest gold bulls. The evidence that gold is on the verge of an explosive move upward is overwhelming...

  • According to the latest stats, the amount of gold sold short on the Commodities Exchange in New York remains near a record high of nearly 11 million ounces. This means that more traders and mining companies have committed to gold sales (without owning the metal) than ever before.

    When they go to buy the metal needed to deliver on these commitments, it could fuel a move up in gold that takes back a full month�s losses in a single day.

  • The major central banks are in a similar bind. Nearly every one has loaned out gold from its reserves. Exactly how much is impossible to figure, but estimates put it at between 150 million to 200 million ounces. Plus, they�ve sold nearly 70 metric tonnes of the yellow metal just since November.

With central bank supplies declining, and most central banks� gold already loaned out, I believe the downward price pressure from the central banks will begin to abate. That means the slightest rally in gold could turn into a monster move.

Combine these two forces with the fact that demand is holding near record highs, and it�s easy to see how gold could turn the corner and blast higher.

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