Comex gold has been making short work of my hidden pivots, and not just the little ones either. There was an important hidden resistance at $500.00 that “should have” slowed the rally down; instead, it exhibited about as much stopping power as the Orleans levee.  There were a few others as well, but the February futures contract shredded its way past the last of them yesterday, clearing a path to at least – here’s a real number for all of you lurkers – 533.60. That’s the closest hidden-pivot resistance above Monday’s 512.60 close, and I expect it to show some fortitude. If it gives way easily, though, we should infer that another at 553.30 will be the next stop.

(Click on chart to enlarge)

What could account for gold’s amazing strength over the last month, particularly its ability to crush hidden pivots with one blow? A story making the rounds is that the Saudis and some of the other oil producers have been moving into gold in a big way. That sounds superficially plausible, except for one detail: If oil revenues really were moving into gold in a big way, the rally would be far more powerful than the one we’ve seen. Crude oil constitutes a huge global market, gold a microscopically small one. My unscientific guess is that even if just ten percent of oil producers’ monthly revenues were diverted into gold, bullion quotes would reach $1,000 an ounce in a trice.

Mining Share Lag

Yes, I know I argued here a while back that the deflationary economic collapse we face is unlikely to provide the maniacal environment for precious-metals investments that many gold bugs have long hoped for. But if the story about the Saudis is true – and it probably is – quite a bit of OPEC flight capital could find its way into gold, pushing quotes significantly higher while the global financial system remains relatively strong and liquid.

That is what I believe we are seeing now, even if it’s just a trickle so far. One robust piece of evidence that supports this thesis is the relative sluggishness of mining shares. You can be sure that if the princes of Saudi Arabia and Qatar are acting to hedge their dollar exposure, they are piling up every ingot they can get their hands on, not scaling in shares of Durban Roodeport, Coeur d’Alene, et al.  Physical metal is, and will remain, far more desirable for their purposes -- and let the rest of us scramble months or years down the road for that part of the supply that must still be gotten out of the ground.

A Step at a Time

Whatever happens, you can count on Rick’s Picks for measured, objective forecasts rather than pie-in-the-sky price targets. For starters, there are the two hidden pivots mentioned above. They might not sound very exciting to anyone who has been waiting for gold to go nut-so. But they should help allay any anxieties you might have that bullion’s rise is about to trace out a punitive reversal. It could happen, of course, but as far as I’m concerned, that will be all but impossible before a minimum 533.60 is reached. And if that hidden pivot, too, is easily brushed aside, you can confidently infer that an additional $20 of upside lies in store, to at least 553.30.