OUTLOOK

"Gold, the Dollar, and the Fed"

11/7/2007

Our forecast on 10/16/07 for a Gold correction of 4% or more within 10 weeks has not occurred yet.  As of 11/7/07, we have exited our short in Gold for a loss as the position moved against us and hit our stoploss.  The underlying bid in Gold has been extremely strong as Gold has advanced 12 of the last 13 weeks.  One would expect a correction of some kind, given that Gold is very overbought and sentiment is extremely bullish.

We attribute the strength in Gold to be from the weak Dollar and the anticipation of further rate cuts from the Fed to prevent a recession.  More rate cuts from the Fed would weaken the Dollar further as its lower yield would make it less attractive relative to other currencies.  As long as the Dollar continues to decline, Gold will be supported in its uptrend.  At one point though, we would expect see Gold correct at least 4% from its peak level within 10 weeks of our original forecast.

Mark Yuan, CFA