Gold Has Already Surged Nearly 25% in the Past Ten Weeks

By Greg McCoach

DENVER, CO--Gold looks set to close in on the $800 level after rising to a new 28-year high early this morning. The precious yellow metal rallied in overnight trading topping off at $798.30/ounce as crude oil prices surged to a record peak and the dollar tumbled on speculation over a Halloween U.S. interest-rate cut.

Mexico's national oil company, Petroleos Mexicanos (PEMEX), said yesterday that it has already suspended the flow of 200,000 barrels of oil per day (bopd) because of bad weather and was planning to shut-in another 400,000 bopd over the next few days. The total shut-in accounts for about 20% of PEMEX's production and adds strain to an already tight global market.

The news that was to suspend production by as much as 600,000 bopd pushed December crude prices to as high as /80 per barrel this morning.

The PEMEX shut-in comes amid continuing geopolitical tensions in the Mideast, raising concerns over export disruptions. Last week a sharp escalation in violence between Turkish and Kurdish rebels brought Turkey to the brink of sending troops south across the border into Iraq. Continued violence on the region will put further upward pressure on oil prices.
I estimate that crude now has a 20-30% premium due to geopolitical turmoil around the world. But the biggest factor for gold right now is, without a doubt, the U.S. dollar.
The prospect of a another rate cut-which seems all but inevitable at this point-has battered the USD pushing it to a new record low against the euro. The euro traded as high as 1.44381 against the USD during today's trading session.
Tomorrow, the Federal Open Market Committee kicks off it's two-day meeting to make a decision on interest rates and will announce the verdict on Wednesday. Many analysts, including myself, are expecting another rate cut of 50 basis points to boost the slowly U.S. economy and lure more buyers into the troubled credit markets.
Gold has surged about 25% in the past 10 weeks. If this rate of increase continues, gold prices will be approaching $1,000 by the end of the year