MARKET UNCERTAINTY Gold powers through $800 - hang on for a bumpy upwards ride Gold moved through $800 on Friday with hardly a pause for breath, which keeps it on track for $900 plus by the end of theyear.
Author: Lawrence Williams Posted: Sunday , 04 Nov 2007
LONDON -
fter a short hiatus period in the $780s and low $790s, the gold price powered upwards through the psychological resistance level of $800 on Friday without drawing breath, closing the day at around $806-$807. Wall Street stuttered on Thursday and made a small recovery on Friday, as there are still serious overhanging concerns about the subprime mortgage fallout which is continuing to create unease in the financial sector - and many observers also feel there is still a 50:50 chance of the US economy going into reverse next year.
Market uncertainty on this scale is an excellent breeding ground for gold investment, and what appears to be happening is that many of those institutions which may have shunned gold in the past, are now buying into bullion related stocks and derivatives to give a degree of gold protection status in their portfolios.
As we have said again and again in these columns, a rising gold price is in effect a sign of the devaluation of the US dollar. Some observers tie the gold price to oil, but in effect rising oil prices are also primarily a function of dollar devaluation so the weakness of the dollar, which reached new lows again on Friday, is the key gold and oil price driver - unless and until there is significant intervention by external sources to try and slow the increases. This would come from OPEC in the case of the oil price, or from the IMF and Central Banks for gold.
There does currently seem to be a reluctance for Central Banks to act in selling gold at the moment in that the effects of even significant gold sales, as we have seen earlier in the current year, have only tended to delay the price increase, not to reverse it, in the current economic scenario. Politically, to sell gold in a continuing rising market, and thus effectively diluting ‘currency' reserves may now be being considered to be a non-starter - at least until the current bull market in gold has played itself out. But this coulod take some time on current indicators.
What may affect price though is that the more that bullion, or bullion ETFs, are purchased by investment funds, the more prone they are to short term profit taking.
What this can mean, in effect, is that the gold investor is in for a bumpy ride of sharp upwards movement in price - such as we saw on Friday - followed by profit taking driving the price back downwards a little, but probably only temporarily, providing good buying opportunities for the gold believers.
As Alf Field noted in his extremely erudite article on gold which we reproduced on Mineweb last week - Gold market move reaches point of recognition - there now does seem to be the ‘recognition' even among some gold sceptics, that the current gold price growth rate phase, which started in mid-August, is solid and should have some way to run yet, pointing to a year end price of above $900 - a level which looked really out of sight only a few months ago.
Field also ties the rising gold price to the declining dollar - which he worryingly considers to be in a ‘death spiral' - and again the point of recognition has been reached already that the dollar is in sharp decline, and will continue to remain so for the foreseeable future. Investors should at least protect themselves from what would be a sharp upwards inflationary scenario - and one of the best ways of doing this would be precious metals investment and perhaps Government bonds.
