The Gold Economy

By Julian Murdoch

As gold prices skyrocketed last year, so too did investment demand, according to the World Gold Council’s recent Gold Investment Digest.

Although gold has since pulled back from its record $1,400/oz level, gold prices were still substantially higher in 2010 than the previous year. Last year, the average price of gold rose 25.9 percent year-over-year to $1,224.52, up from $972.35 in 2009. Much of that was driven by investment in ETFs and physical gold, as U.S. unemployment and lingering fears of further economic difficulties in Europe continued to support gold as a safe haven.

ETFs: Surprises In GLD, India

Gold (GLD) is again under pressure: On Thursday it went under its 130-day simple moving average and recovered Friday just above the moving average. Silver (SLV) recovered strongly Friday and eked out a 1.75% gain for the week. GLD is now 6.3% off its peak while SLV is now 9.5% off its recent peak. The broad based commodity index (DBC), on the other hand, is at 52-week high after Friday’s market close. For more performance details, refer here.

The trend

With gold prices showing no signs of a breakout in 2011, so far, many investors have started unwinding long positions in anticipation of no further upside. The situation warrants a close scrutiny of the state of affairs. In the following part of this essay we analyze indications from the correlation matrix and technical indicators from silver and mining stocks to gauge the extent of this concern.

However, first, we would like to draw your attention to the fact that the London Bullion Market Association conducted its annual survey of leading analysts to ask them where the price for gold