Gold & Palladium Outlook
Emanuel Balarie
Several weeks ago I wrote about how the US dollar was on the verge of a breakdown and that gold was on a verge of a break out. Sure enough, the dollar has hit multi-year lows against a wide array of currencies and gold, while overbought in the short-term, seems to be well on its way to multi-year highs.

One of the interesting aspects of this recent move up in the gold market is that gold prices have had a relatively orderly move up to new highs. After the knee-jerk sell-off in gold (where gold mindlessly tracked the equities market) gold has moved higher by trading in ranges…and breaking those ranges…and moving swiftly higher due to buy stops being triggered. Another way of looking at this is that gold prices have moved higher in a "stairway" type approach. Take a look, for example, at the gold chart.

I believe that we can expect the same type of trading as we head towards $800. Sell-offs within ranges should be buying opportunities, with previous levels of resistance serving as decent support. In the short-term, I expect a further move that will indeed take us close or above the $700 level, followed by a sell-off. While the $700 is simply a psychological number, it might prove to be the upper end of this range. There seems to be a good number of shorts in the markets, but there has been strong investor demand for the metal.

Palladium prices also hit a 10 month high this past week. Take a look at the below chart.

Earlier this year I was quoted in Barron's as saying the palladium prices would likely finish off the year at above $400/ounce. With the price of palladium on a pretty steady uptrend (and now trading at $375), this seems well within reach. Ironically enough, palladium, which is used in automobiles, is like a trusty old car. It often has trouble starting…but when it starts…it moves. For the last 6 months it has traded in a range…but in the last couple of weeks it has clearly broken out of that range.

The move of palladium this week also reminded me of several value plays in the commodity markets. Almost 2 years ago in August, I wrote my first commentary on palladium. At that time palladium was trading near $180/ounce. The metal had not only failed to move up during this first stage of this precious metals market, but it had actually declined drastically from its highs. In that article, which you can read fully here, I stated the following:

"Whenever an asset falls in value by 80%, it has to be examined for its potential as a contrarian, value-oriented investment. Such is the case with palladium. In a commodity bull market, where substantial run- ups have occurred in oil, copper, precious metals, and other raw materials, palladium has escaped the notice of most investors."

Read in full… "The Case for Palladium"


April 22, 2007


Emanuel Balarie
Senior Market Strategist
Wisdom Financial, Inc.
www.wisdomfinancialinc.com

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