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Gold setting up for a big move higher

Thom Calandra
0 Comments|March 20, 2013

TBT price has been climbing since early November

Yes today, Wednesday.

Ahead of the USA Federal Reserve Open Market Committee meeting's conclusion (Wednesday).

With Treasury bond prices falling, gold is setting up for a big move higher.

That is the TCR take, pardon the macro. We rarely get into forecasting on secular trends, let alone FOMC leaf-reading.

Gold's $15 to $20 gain in the past eight days appears to indicate the price, now at $1,610 an ounce, already has "taken out" the volatility ahead of the banker's policy statements.

I found this article of great interest today. It is about the modified timing of the Fed's meeting minutes and any statement from the Fed chief. See 

I look at the USA and other government bond yields this morning. I look at the pace of accelerating consumer inflation, albeit a creeping acceleration, in North America.

I look at the TBT (NYSE: TBT), an Exchange Traded Fund that is a reverse bet on 20-year Treasury bond prices. What I see is an ultra-short way to bet against the bond's price but to bet with a rising yield. The TBT price has been climbing since early November.

It wants to get to the $70 level. The 10-year Treasury yield wants to get above the 2% yield level again. Gold wants to get back to $1,650.

Gold is a financial instrument that regulates risk and money flows. Just as Treasury bonds do. The rising yields of late probably reflect higher gasoline prices in North America. Higher health-care costs for all businesses in the USA must be factored into any price inflation formulas, too.

So. I know, given the destruction of gold values and metals equities thus far in 2013 (actually since March 2011), all of this is a bold deduction.

Most folks I polled this morning tend to avoid wanting to attach, say, an additional $2 trillion of Federal Reserve bond buying, if we were to see such news later today (around 2 in the afternoon ET time on the policy statement and fresh econ-projections; a half-hour later on the Fed chief's statement to reporters), to a higher gold price. 

TCR could be dead wrong. Many economists see the USA bank today indicating it wants to trim the Fed's $3.5 trillion balance sheet. Which probably would mean the Federal Reserve actually starts to pull back its $85 billion market purchases each month.

One of our TCR family and thus far accurate chart watchers, Brad Bloomer in Ottawa, Canada, sticks with his anti-gold view, for the present anyway. He tells me from Florida:

"Doubt that the Bernanke will have anything explosive to say. I may be wrong; we’ll see," says Mr. Bloomer, whose track record speaks for itself among our TCR subscribers. 

"I will say, however, that it is possible that gold is consolidating in a bottom formation. Last week I dipped a toe in the water, buying a little Sandstorm Gold (TSX: T.SSL, Stock Forum) at $9.90, just in case.  A close above $1,630 per ounce might cause me to buy another stock or two.  Otherwise, I am on the sidelines with a stop loss on SSL at 9.60."  

He continues: "Watching, waiting, and skeptical that gold has put in its final bottom, which I still anticipate will be around $1,400.  And that’s because, for six months or more, I have been expecting the dollar to rally to new highs (while the consensus has been calling for it to crash and burn for as long as I can remember)."

Mr. Bloomer, who has been around the block as a banker in Europe and an aggressive investor in gold ventures in Colombia and elsewhere, is watching the Dollar Index (DXY in USA). "If the buck takes out 83.08 (vs. 82.70 today) on a closing basis and holds it for two days, the die will have been cast and the upside target will be somewhere around 100." That's Brad.  

So so? 

"I still think Cyprus has the potential to rattle confidence and fuel gold so maybe we will get a double whammy shortly." That is Danny Deadlock, an Alberta writer and one of quite a few folks I polled today. He writes the newsletter I co-founded at Stockhouse,

Tolima Gold (TSX: V.TOM, Stock Forum): The operator of San Pablo Mine at Remedios in Colombia received a favorable court ruling.

"Following our petition (tutela), the (municipal) judge ruled in our favor, so the previous decisions affecting us are nullified. It means we recover the assets that were being evicted and will go back to production next week," CEO Jaime Lopez tells me. 

Our interest: Tolima's properties in and around Remedios and Segovia could one day become part of a consolidated gold producer with others in the area, including privately held Grupo de Bullet. See Tolima statement. I own the shares because of that possibility -- a redux, one hopes, of Grupo de Bullet's successful engineering of Continental Gold (TSX: T.CNL, Stock Forum) and the Buritic√° property, also in Antioquia.

The idea is to create another Buritic√° of rich-veined mines across as much as 40 km of strike length in the area of Otu, Remedios and Segovia. Tolima shares are mega-high-risk. I own them. If any consolidation takes place, there likely would be cash and shares changing hands. 

Tolima would be left with cash and shares of the new company, which will center at Otu and Remedios, not far from our Gran Colombia Gold. Tolima also would focus more on its Iamgold-supported Tolima property, which is not in Remedios/Segovia/Otu.

On my purchase this week and next: Continental Gold, which I covered, thanks to Ari Sussman and Stuart Moller, years ago -- even before CNL became publicly traded. I have never owned the shares. 


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