Has Gold Weathered the Storm?

July 4, 2012 | By | Reply More

Sit back and relax, gold has weathered the storm, what there was of it! One year ago the yellow metal traded at around $1550 an oz., on three occasions since then it has flirted with $1500 an oz.

At no time has this support looked in serious danger of being breached, with the bounce off the lows shaping up pretty rapidly. Those longer term gold investors who have stood by the yellow metal for over a year should now feel confident that their profits are in the bag although the heady days of last August and September when $1900 an oz. and looking good for over $2000 was the expectation are no longer a near term likelihood.

Golds Underlying Strength

What we are now seeing is very firm support being translated upwards into a decent level around $1600 an oz. at a time when, historically, the precious metal market in June, July and through to mid August has tended to level off or take a breather. With this underlying strength and the progressively stronger fundamentals in support it seems reasonable to be optimistic about the resurgence of the gold (together with silver) bull market by late summer.

Central Banks Buy Gold


It is reported that the central banks of emerging markets are diversifying out of currencies into gold. You don’t need to be an ‘Einstein’ to work out the reasons for this as the leader of the currency pack, the US dollar looks weaker by the day, with the yen, euro and pound following suit.

For example, China doubled its 2010 gold purchases to 490 tons in 2011 with every sign that this will be exceeded in 2012. Nations that can add to their gold reserves have the added bonus of stronger currencies.

Gold the Favorite Safeguard

The real return on the so called safe haven of government bonds is, and has been for over a year, negative thanks to inflation. Investors of any class looking to protect their wealth are unlikely to put up with this in the longer term and will be looking for asset classes that will offer some safeguard. This is where gold is favorite to head the list.

Gold Bullion Expected to Have a Zero risk Weighting

Here is another interesting item to add to the longer term bullish mix. The Federal Deposit Insurance Corp, better known as the FDIC together with the Fed and the Office of the Comptroller of the Currency are considering changing the risk weightings of a number of assets, including gold.

Gold bullion may be re-classified as zero risk together with US Treasuries (!!!), other government guaranteed assets and the dollar cash. Gold currently has a 50% risk weighting. Should this go through by the beginning of 2013 as proposed then its primary purpose looks to be an easing up on collateral demands.

Tomorrows News Strengthens Gold

Today the strong possibility of a 25 basis point rate cut by the ECB to be announced tomorrow, Thursday, together with a £50 billion further round of quantative from the Bank of England also due out on Thursday have been the catalysts for a further strong gold performance on European markets.

Banks Long Term Optimism

Finally Morgan Stanley has cut its shorter term forecast for gold from $1825 an oz. to $1677 an oz. for the remainder of this year but remains bullish in the long term while Deutsche Bank forecasts the yellow metal to achieve an average of $2015 an oz. in 2013, up by 25 % on this years average.

Forecasts emanating from the banks vary week to week but without any major exception that we know of, are bullish for the future. At Precious Metal Investments we are long term holders of gold and silver ETFs, gold bullion and miners, we can think of no other vehicles for our (limited) wealth that would cause us so little concern in these turbulent times.

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