Missing a Golden Opportunity

July 14, 2010 | By | Reply More

Gold IngotThe last four weeks has seen spot gold reach its highest price ever at $1262 an ounce only to fall back quite dramatically to $1090 an ounce in only seven days before firming up a tad to circa $ 1210.

The old, and pretty well proven, trading advice “Buy the Dips” when the overall trend is up, has come into play and we believe still holds good in the gold market at the present time.

Although historically most years have seen gold trade sideways in the months of July and August, potential buyers risk missing a golden opportunity (pun intended) to top up on their gold holdings if they assume that the yellow metal will follow its historical path.

Such is the fragile state of the economies of the US and the Euro nations that there is far from any guarantee that a crisis will not break out within the summer season despite, or perhaps because of, the politicians, bankers and so called business leaders taking their extended summer holidays.

In fact our gambling instinct tells us that it is a pretty good bet that within the next few weeks the present stock market euphoria will dissipate. There are so many potentially disastrous scenarios that stand up to sound reasoning that could occur at any time regardless of historical precedence, any one of which will give the ‘go’ signal for gold to take the next logical leap forward.

Why, you may ask, has gold seen a $70 reversal within less than 7 trading days? As far as we can see the principal drivers have been that hedge funds had to find the cash to fund a high amount of redemptions so cashed in their profitable longs on gold, the dollar had a few good days, and there were 349 tonnes of gold swapped by commercial banks with the Bank of International Settlement for $14 Billion in paper currencies.

The fear here was that if any defaulted, the BIS would sell the gold on the open market, so a drop in price would be the result. As this amount of gold is less than that traded daily on world markets it is unlikely to have a significant long or even short term effect on the price in the unlikely event that the BIS will suffer a total default and put all 349 tonnes on the market. In any case that particular scenario would not play out until the latter half of 2011 at the earliest.

As is so often the case, speculators, particularly the shorter term variety and scalpers were frightened out as were no doubt, some faint hearted longer term investors. We sincerely trust that they will regain their courage, restore their gold holdings and have faith in the future of the yellow metal to preserve their wealth whatever the future holds.

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