2012-08-30kitco.com

One chart that might turn those three bears to gold bulls was featured in a recent Investor Alert. I noted that gold's 12-month rolling return in standard deviation terms triggered an extremely low sigma event, dipping below a reading of -2. To our investment team, this signal means that investors should expect gold to experience a significant price reversal.

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Gold still hasn't made it back to its all-time high, but Stifel Nicolaus' gold-to-crude oil ratio suggests gold climbing to $1,900. According to Stifel's research, the gold-to-oil ratio based on the price of Brent has historically "shown a tendency to run to around 16.5x." In other words, the price of the yellow metal is usually about 16.5 times the price of a barrel of Brent oil. With Brent trading around $116 per barrel last week, the math tells us that gold could go to $1,900.

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As for gold demand in India, his team hears that people are buying gold with cash to avoid the higher duties. "As a result, these cash purchases will not be recorded in the official data," says [Christopher] Wood.


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