Gold ETFs Hold Record Amounts of Bullion

February 16, 2009 | By | Reply More

It is estimated that by the end of last week Gold traded ETFs had increased their bullion holdings to a record of almost 1400 tonnes while sales of gold coins by the US Mint is running at double that of a year ago.

Morning trading in Asian markets saw gold under some selling pressure with traders pushing the price below $938 an ounce but Europe’s opening quickly saw the price back above $940 an ounce.

Also no great show of profit taking became evident in the US on Friday ahead of the ‘three day’ weekend.

This resilience indicates that the underlying appeal of the metal as a safe haven remains strongly in place, with the fall off in jewelry demand from India, in part due to a weakening rupee, having little effect.

With global stocks looking vulnerable to more falls as the bad news continues, gold remains the only bullish play in town.

Technical analysts seem in agreement that the trend will remain in place with a variety of projections for the next key levels to be broached.

You can take your pick from anywhere between $955 an oz. to the March 2008 peak of $1033 an oz. In the longer term there are some technical expectations that the metal will climb well above $2000 an oz.

Regular readers of these reports will be aware that we have reservations about the merits of technical analysis.

Relying on historical data to predict future market trends can be manipulated to suit almost any set of circumstances.

It will be the analyst’s preference for the tools, chosen from the multitude available, and their application to whatever time scale he feels is appropriate, which will determine his forecast.

Sometimes an individual or group of technical analysts may get it 100% correct, on other occasions using the same formulae their forecast may be totally adrift.

Many investors, speculators, hedge fund managers, etc., make their moves by either following a chosen technician, using their own in house analysers or their own or computer based analytical models.

The question we ask is ‘which comes first, the chicken or the egg?’

This seems particularly relevant to the short-term speculators and scalpers where technicals do seem to provide plenty of profitable opportunities to these players.

In the longer term we only have to look at the forecasts emanating during the last eighteen months from some of the most (so called) respectable institutions and their analysts to see how wrong (or maybe biased) they have been.

In our opinion longer term gold investors should ignore the technical forecasts and projections and give their attention to the fundamentals, at present looking strongly in favour of a continuing bullish trend.

Lower supply and higher demand through 2009, expectations of an inflationary burst possible before the end of the year, if not, most certainly at some stage in 2010/11.

Prospects of more money being thrown at ailing banks, industries, infrastructure etc. by governments who have no choice but jack up the printing presses to further depreciate their fiat currencies.

All this and much more points to gold being the last resort as a safe haven store of value.

We do have one word of warning in this ‘golden scenario’. If the price rises fast and furious then we will have a bubble situation and we now have no excuse for not recognising the consequences.

We would like to see just a shallow upward curve having no shortage of higher lows and higher highs as market players go about their business in an orderly fashion having learnt from the recent past by not getting too greedy.

That leaves us with the producers and where they go from here. The share prices of both the senior and the better junior gold miners have yet to reflect the strong demand for gold.

If the this demand maintains its momentum then as surely as night follows day there will be some excellent opportunities for profits in the mining sector for wise pickers.

Our advice is to steer clear of miners with significant operations in politically unstable countries and any miner that is not predominantly a gold producer. Amongst the seniors there are a number who fit this bill and have strong balance sheets, good cash reserves (and how important is that these days!) and whose share price is still far from reflecting the strength of their product.

Carefully picked juniors can reap massive rewards in an environment where production is down, demand is rising and funds for exploration and development are restricted.

Those sitting on promising properties are a target for interest from the majors either to inject funds in exchange for shares or outright takeover.

Some activity is already evident so some research need not be a waste of time. The gold sector is on the move in the right direction and interest is growing rapidly so be careful not to be left behind.

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