Although the price of gold never truly probed the 1540 support level today, it nevertheless was in the general vicinity. Thankfully, much of today's drop that carried over from London trading was erased by short covering in New York. At afternoon close in New York, gold is down $4.20, most of which is due to normal trading activity, the dollar holding firm to slightly lower.

As the dust settles on the first quarter of precious trading, it's become clear that a lot of the rush from gold has been via the disillusionment investors are exhibiting toward ETFs. While there is some pick up in physical demand, it simply hasn't been enough to offset the ETF debacle. But, the market will adjust and the end result might well be that as gold becomes more of a "commodity" and less of a semi-exotic instrument in the hands of the ETFs, the price will stabilize and continue upward.

However, the distortions being caused by the semi-exotic investments may be nearing the end of its cycle. Short run, there is more unwinding to do. Middle and long run, the unwinding will let real buyers come back in and treat gold as it has been historically, either haven or hedge, not pure speculative action. 

The Bank of Japan began its version of quantitative easing today under the new regime of its governor Haruhiko Kuroda. It is hoped it will increase spending on consumer goods in Japan. Some are dismissing it as a veiled way to drive down the value of the yen. The value of the yen is not Japan's problem. Domestic consumption is, and has been for the last 30 years. This should benefit younger adults in Japan who have not been so inculcated with the penurious Japanese savings ethos.

Meanwhile, over the Department of Fear, we have two memos.

The first is the talking war by North Korea, which on some level has to be taken seriously. No more Pearl Harbors in the Pacific, please. It is believed that via Australian trade contacts, China is being forcefully asked to talk the chubby dictator down off the ledge. But, crises are good for gold.

The second memo concerns the lousy unemployment numbers coming out for March. Again, this is good for gold and silver. If the jobs recovery continues to stagger, not only will QE3 continue, there might be a new kind of stimulus that will be even more targeted. Be assured that there is no chance QE3 will end anytime before the end of the year. 

We've discussed this many times, but we still have to keep a wary eye on the run up in the general equities markets; on Europe's out-of-control spiral; and wage pressure in the United States. The last is beginning to float on the horizon and can only herald some real inflation.

As always, wishing you good trading,

  

Gary Wagner  

 

Executive Producer

The Gold Forecast

gary@thegoldforecast.com 

On Skype Gary.S. Wagner