Gold hits critical point

Today will be a very important day for gold. The next seven days may be the most important week for gold all year.

Why? Well, until yesterday’s rally, gold was in danger of being down from this time last year.

What? Whoa. How can that be? Gold is in a powerful uptrend. From the April 2, 2001, low of $255.60 a troy ounce until now, gold is up 266 percent.

What about the federal budget deficit, the trade deficit and inflation? Gold can’t go down, can it?

Perhaps it can’t. We’ll see today and in the coming week. Gold’s close on May 4, 2006, was $674.20. Gold’s close May 2, 2007, was $672.30.

Not to worry. Yesterday gold closed at $681.70 after rallying about $9. Whew, that was close. But the threat isn’t over.

On May 5, 2006, gold closed at $682.20, so gold needs to go up in today’s trading to stay ahead of it. On May 9, 2006, it closed at $699.40. On May 10, 2006, it closed over $700 for the first time in a generation. On May 11, 2006, it peaked at $719.80.

Any day now, gold could post a negative annual return. Silver already has.What would that mean? Will it dent confidence? Is it a sign of worse things to come? At the very least, it might indicate that the easy money in the gold market has all been claimed.

It has been reported that Barrick Gold, a gold mining firm worth $25 billion, finished fulfilling all of its futures delivery commitments earlier this year. This hasn’t been the case for many years because it routinely sold a part of each year’s production in the futures market to nail down prices and lock in profits. What it means is that for the first time in years, Barrick is free to market its output at current market prices. Obviously, the firm thinks it will make more money this way. If Barrick executives fear that the metal might tank, they might just start selling forward again in the futures market, which would help to reinforce any developing downtrend by adding additional supply. If central banks figure gold is going down, they might dump some of their metal holdings, too.

So watch gold trading in the next few days. It might teach us all a lot.