Jim Sinclair on the scope of the downturn in gold.

Discussions on the Price of Gold:

The subjects of today's discussions amongst gold people were:

1. Interest rates.
2. Seasonality.

1. We are already into what the Fed will do. The going opinion amongst the gold people who always seems to want to be wrong about being bullish is what will the effect of a 1/4 point drop be? Will that not strengthen the dollar and then hurt gold?

What they seem not to note is that there is little room between the present discount level and zero. Interest rates are useless in the present situation outside of a short period of spin. If the Fed sliced hard there would be little room to do it again. It does not take a genius to know they will have to keep some ammunition for emergency drops and shock PR.

The dollar and the euro know the expectations and therefore have priced in the 1/4 point reduction. Outside of no change in rates I see no dollar rally with even one leg on a 1/4 drop. It should be a non-event.

2. Seasonality is quite meaningful to gold when it is a commodity and meaningless when gold is a currency. Jeweler's demand is no factor when gold is running as a currency. Other than a modest impact from those in anticipation of commodity demand running the market, I see seasonality as a non-factor in the present gold market.

The prime mover of gold will be the US dollar which has not done much of anything as a result of the "Please listen to us" G7 meeting.

Whatever Gold has to do on the downside is done by early May.