Scaling new peaks

Gold opened the 2008 trading year by breaking over, and then rising beyond the pinnacle it achieved last year, indeed in any year. A massive surge in crude oil (sparked by the latest violence in Nigeria) to its own record of $100 a barrel and a markedly softer US dollar (last seen at 75.93 on the index) on the heels of the ISM data for last month's industrial activity (read: anemic) contributed to the metal's successful attempt at planting the flag on this market's Mt. Everest. Although conditions remained on the thin side as part of the trading crowd will not return until Monday, the move today suggests that funds may have made additional moves into bullion with Pakistan's situation remaining on edge and global investors obviously still nervous about financial markets as we begin the new year. The stock market certainly did not start 2008 on a reassuring note...(but, see below). No market was going to ignore triple-digit oil and weak industrial activity. Thus, the construction spending news got buried today, despite showing there is life remaining in the sector.

New York spot bullion closed substantially higher, finally fulfilling the 27 year old dream of gold bugs everywhere. The metal rose $23.40 to $856.70 bid, after ticking as high as $861.80 on the offer side intra-day, this, as market participants made the expectations they had expressed last month a reality. We can expect additional gains if the financial media disseminates the news and trend-followers pile into the market on speculative emotion. Silver gained 38 cents to $15.15 but remains under the threat of underperforming gold as demand for industrial uses hangs in the balance should an economic contraction become deeper than expected. Today's ISM data did not bode well for the silver camp as far as strong industrial offtake is concerned, and the metal will need fresh inflows of investment money to maintain here and try for more. Platinum on the other hand, showed no worries about users substituting it with palladium and rose an additional $11 to $1539.00 per ounce.

As the market replays the events that gave it notoriety back in January of 1980, we can certainly expect to hear ultra-bullish chatter pick up significantly and argue that this is 'only the beginning' of...something. The news clippings we saved from the era are also rife with confident predictions (some of them, by the same writers still in circulation today) of four-digit prices and more. For 1980 and 1981, that is. While there is no debate that price moves may now become highly unpredictable (in either direction) since we have waded into basically uncharted waters, the mere fact that speculative positions are approaching a quarter of a million contracts and that the addition of not too many more of them would tilt the market into heavily overbought (as opposed to just simply overbought) territory should also be in the back of the minds of latecomers to this party. Tread with utmost care. Or, as a classic (and continuing) gold bull (Ned Schmidt) just said: "Buy low, don't buy high." Hope he doesn't get labeled a 'bear' for merely stating the obvious.

We, on the other hand, will continue to bring you all sides of the gold story, pleasant reading, or not. It has been our task from the beginning to cover the less often publicized aspects and stories of the market. The rest is (as always) up to you, the individual reader/investor. With this in mind, let's take a look at what Marketwatch's Mark Hulbert sees in the contrarian catacombs these days:

"Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average gold-market exposure among a group of short-term gold timing newsletters. As of Monday night, the HGNSI stood at 66.1%. That's 25 percentage points higher than where this gold sentiment index stood one year ago.

To be sure, given gold bullion's strength during calendar 2007, during which a price of an ounce rose by more than $200, an increase in bullishness is entirely normal. Still, at 66.1%, the HGNSI is getting within shouting distance of levels that would indicate a lot of optimism and euphoria among the gold timers.

On the contrarian grounds that markets like to climb walls of worry, the stock market would appear to have a lot more upside potential than gold.

Note carefully that this forecast focuses on relative performance, and thus does not mean that gold will necessarily have a terrible year. The contrarian forecast for 2008 could turn out to be correct with both stocks and gold rising, for example, but with stocks rising even more.

And, by the same token, this forecast does not mean that stocks will necessarily have a great year. It could also turn out to be correct with stocks having a mediocre year, or worse, but with gold have an even worse year."

Wonder if Mr. Hulbert is vying for the MOTY award himself, by bringing his readers such potentially 'disturbing' news on the very day that gold makes a new high...

In the interim, watch the spectacle unfold. Such events do not appear to come by very often.

You might wish to visit www.kereport.com for and interview I did today with host al Korelin about gold and China. I hope you will find it informative. Thanks.

http://www.kitco.com/ind/Nadler/jan012008B.html