Gold looks set to be supported and set to move higher as we approach the anniversary of the 9/11 attack on the U.S. and the expectations of an attack on Iraq intensify.
Gold is trying to establish itself in a range at the moment. The market is looking for fresh direction.
Gold is in search of a fresh catalyst to return it to recent highs.
Gold has started 2006 in a positive manner and we suspect that this strength will continue in the near term.
Gold and the other precious metals appear to have found support after the recent sell-off, however, we believe it is too soon to turn bullish on gold specifically.
We believe the strength of the physical market is vitally important for 2006; even though gold is rising on speculative and investment buying, at some point there will be a reversal of this trend and gold will correct.
It seems extremely unlikely that gold doesn't trade $600 an ounce in the spot market at some time either today or this week.
I do believe that the recent run up in gold has been almost entirely driven by speculative and investment demand as jewelry demand has fallen sharply.
People have realized that the dollar is important for gold but it's not the only factor and you cannot slavishly trade gold just simply because of what's happening to the dollar.
We had a period of needed consolidation in gold ... with rallying base metals, strong silver prices and improving momentum, we can probably go higher.
Of course, gold can go higher on investment and speculative demand, but there seems no clear motivation for new money to be committed to gold at this time.
We believe that investors are likely to interpret this ... as being positive for the gold market as it will raise speculation that China will increase its gold holdings.
We believe that gold is attempting to find a range with the recent extremes of $535 and $555 likely to confine the metal for a while.
We suspect that technical buying of gold and silver on COMEX (New York) will be triggered by a positive announcement of the silver ETF.
We do not believe that this correction is over and suspect that gold will now consolidate between recent extremes of $545 and $568, with a break of $575 needed to bring back bullish sentiment.
I would say that when buying gold shares, additional risk is taken on compared to buying the metal or a derivative thereon.
We need to find the level at which underlying physical demand will support gold. Until then, I wouldn't be comfortable with gold up here, because it's all investment and speculative money at the moment.
After the rapid rally in gold over the past few months a correction is almost inevitable at some point and this could be it.
The level at which physical demand emerges to support the metal will then form a base for gold to make fresh gains.