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This valuable resource represents some of the most respected futures research in the industry -- yours at no-cost. You’ll pay up to $20 anywhere else. In addition to all-time contract highs and lows, 10 years of supply and demand tables, and other comprehensive information you’ve come to expect, this year’s guide features a traders’ glossary, international economic statistics, expanded market coverage, and much more.

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The gold market is clearly in a long-term bull market. We have made new highs recently, and everyone is wondering how high it can go! According to a special Hightower report on gold and silver, many factors are expected to drive prices longer term–in addition to the weaker dollar. Other factors include financial investment diversification, a tight supply/demand situation, and a true global commodity price inflation–similar to that of the ‘70s. From the early ‘70s through 1981, gold rallied from $35 to $800 per troy ounce, an increase of approximately 2,200%. In the early ‘70s, I have to imagine that few believed that they would see gold at $800/troy ounce. Today, we are in a similar mode with new highs continually being broken on the upside. From a trading perspective, the increased volatility in the financial sector and possible economic slowdown are contributing to the strength of the bull trend in gold. According to the World Gold Council, a study from 1971 – 2002 concluded that gold and the U.S. dollar have consistently been negatively correlated. As long as the U.S. dollar remains in a long-term bear market, investors will likely continue to use the gold market as a flight to quality play.

The gold market has continued to rally, with good reason as the financial markets increased in volatility due to the sub-prime mortgage write offs and continued weakness in the equities markets. At this point, the Fed has continued its commitment to loosening monetary policy–to alleviate the credit crunch and market fears of a recession, as well as to support growth. The massive sell-off and panic in the equities markets warranted the Fed to cut interest rates 75 basis points on Tuesday of this week, a week before the scheduled Federal Open Market Committee meeting. As the Fed cuts rates, the value of the U.S. dollar should theoretically fall–relative to other currencies. Gold then rallies, because it is considered a safe haven currency reserve. Gold is the only true currency reserve that is not dependent on human intervention to set its value, and will likely continue to become more important to emerging markets. Many countries that are pegged to the U.S. dollar are actively looking to diversify away from it, because it continues to devalue their reserve. If countries diversify away from the U.S. dollar, the primary choices are limited to either the euro currency or gold at this point. With the appetite for risk declining in the global marketplace, gold looks to be the front-runner currency reserve. Many market participants have already stated that they are expecting the Fed to further cut rates next week. This should hold a premium in the gold market until the announcement is made on Wednesday.

Through my efforts in researching the gold market, I came across an interesting article written by Ed Wener, entitled "A Look at Central Bank Gold Reserves." I believe this article further supports the long-term demand argument for gold. With the exception of the U.S. (with gold reserves that have been very stable over the past 25 years), the countries that are pegged to the U.S. dollar have been selling gold reserves over the past 25 years. It is suggested that the selling of gold by USA Bloc countries has pressured or contained upside momentum in the gold market, which has contributed to supporting the dollar historically. The European Bloc has also been a major seller, although not as aggressive as the USA Bloc. The Eastern European-Russian Bloc and the Asian Bloc have been the most notable buyers over the past 15 years. Their shares are still significantly less than that of the USA or European Blocs as a percent of total currency reserves. If the trend remains intact, it is highly likely that the Eastern European-Russian Bloc and Asian Bloc countries will look to continue to add to their gold currency reserve holdings.

According to the World Gold Council, major world gold mine production comes from the following countries: South Africa (11.76%), Australia (10.44%), U.S. (10.41%), and China (8.90%). At one point, South Africa held approximately 70% of the world gold production market. Due to mining advances made in several other countries (especially Asian countries) and aging, less-productive mining equipment in South Africa, their market share has significantly declined even though they are still the leader. This could create supply-side issues for the market.

From a supply/demand perspective, the above ground stocks of gold in 2005 were split between industrial uses, jewelry, and investments. Approximately 12% of total gold supply was used for industrial and dental demand. Approximately 7% of the total industrial demand is used in the technology sector. This demand is expected to increase as emerging markets continue to grow. Another new industry sector that is creating additional demand for gold is nanotechnology. About 19% of the total demand came from the investment sector. Approximately 69% of the demand is from the jewelry industry, which most notably comes from India. The increased demand will likely contribute to the overall commodity inflation.

Have we made the high in the gold market? My instinct tells me that we will continue to see new highs in gold over the next few years--and possibly the next decade. When using the markets to trade, I recommend paying close attention to the long-term trend. As a trader, you should be aware that the market will not go straight up and will likely see corrections along the way--making trade management very important. A 10% correction requires larger price swings as the price increases. From looking at the monthly gold chart below, the bull trend is clearly intact with key long-term support at 792, 692.5, and 511 based on the front month. It is also clear that the price swings have become much larger as the market rallies.

If you cannot view the Gold chart, go here.

The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

Get your NO-COST copy of Hightower’s 2008 Commodity Reference Guide, compliments of RJO Futures. LIMITED QUANTITIES!

This valuable resource represents some of the most respected futures research in the industry -- yours at no-cost. You’ll pay up to $20 anywhere else. In addition to all-time contract highs and lows, 10 years of supply and demand tables, and other comprehensive information you’ve come to expect, this year’s guide features a traders’ glossary, international economic statistics, expanded market coverage, and much more.

Get your copy shipped to you from RJO Futures by clicking here.