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Buying the Gold Price Breakout

Stocks in this article: GLD SGOL IAU ABX NEM FCX GDX

Will gold exhaust itself?

Peter Grandich: We compared the gold market now to what it was like in the early 1980s....through the 50s, 60s, 70s the Dow Jones Industrial Average was trapped between 700 and 1000. By the early 1980s, equities became so out of favor that there was an infamous Business Week Magazine front page story that said equities are dead. They were not owned largely by the public..... but then the Dow broke through 1000 and stayed through 1000 and ran much higher....along the way many people in the early stages kept saying it's got to pullback, it's got to exhaust itself because they became so accustomed to it being in a trading range.

Peter Grandich: Gold had a major breakout above $1,000. We had called it and said it would go from a ceiling to a floor. My personal opinion is....I don't believe in my lifetime...we we'll see a price of three digits or less in gold again. If there is a correction to come, if there is a serious consolidation I don't think it will be much... but gold has somewhat been self correcting itself. It's has many intra-day corrections where we go lower, where we see the paper market at the Comex hit stops and suddenly within an hour or two it was heading back or surpassed the point where those sells came in. It was kind of like a self correction.

Who's buying: momentum traders; retail investors; fund buying; short covering?

Peter Grandich: I think it's everybody that you mentioned. I think people are participating in it....The stamp of approvals came in two ways. The first big fundamental stamp was India's purchase of IMF gold. That really gave people a realization that that large a quantity available sale that someone would step up and pay retail prices really put a floor under gold. But I think the other thing that's happening as I compare it to the early 80s is we're now seeing established not crazy people always predicting the end of the earth, but significant money managers from around the world from Paulson all aggressively are buying gold and looking for it to go higher. That happened in the early 80s too as some of the early equity mavericks who had been long term bears and had been against stocks for years turned bullish. I think you're seeing the same thing happen here. So I think it's a combination of all different types of people hitting the market at a time when the commercial traders and perma-bears have been aggressively short and they're getting squeezed

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