GEE I Love contests. Is there a prize for the closest guess and then one for furthest away?

Psst! 0.37 cents, if we are lucky. There is a double-dip recession on the horizon. Scared yet? There is way too much debt world-wide and a lot of people will be using their money to buy goods, food and services and not gambling in penny miners. Don't get me wrong but I'd like to see TYHEE higher.

Gold - $800 or $5000

Over the past month, there has been a lot of speculation about where the short term price of gold is headed. Countries holding huge amounts of foreign treasuries, like China and Russia, would love to see a decline back to the $800 level as that would allow them to significantly increase their gold holdings. Therein lays the crux for them. As the price declines, they will use the lower price to increase holdings, and the very act of doing so will support the price. Do they have the wherewithal to resist buying in hopes of a further price decline?

In November 2009, India bought 200 tons of gold from the International Monetary Fund at an average price of $1045/ounce. Look for India to use that price as the lowest they will allow the price before they continue buying. They will do so because historically, they have held nearly 20% of their foreign reserves in gold, yet right now they only have around 4% with the bulk being in US Dollars. As the Dollar strengthens on Euro weakness, look for the Indians to sell Dollars on strength and buy more gold.

I don’t see the gold price dipping below $1000 primarily because of the desire of India and China to diversify their Dollar holdings but also because the growing number of private individuals looking to own physical gold. The Euro crisis just heightens the global awareness of the financial situation that the developed countries are now facing.

Renewed strength in the US Dollar is not a result of improving fundamentals so don’t be fooled. The American debt situation continues to worsen and universal health care proposal that President Obama is pushing will only add to that debt. The strength in the dollar is a result of the movement of money from Euros to US Treasuries which some see as safer, but over the longer term, I believe you will see much of that money move out of US Treasuries and into gold when the focus returns to America’s own debt crisis. When this happens, we could very well see gold hit $5000. I wouldn’t hold your breath on this one, though. This could still be 5 – 7 years out, but the long term trend is definitely UP! So my guess to the TYHEE whisper number for Sept 24, 2010 stands at 0.37 cents. GO AHEAD MAKE A GUESS TOO !!