Gold Picks Up Steam Again

January 26, 2012 | By | Reply More

With a rise in one month from a low of $1530 an oz to a close  of $1707 this Wednesday, investors can be forgiven for believing that gold has resumed its upward momentum after the two stage correction it has experienced since peaking at $1900 an oz last September.

To recap, it picked up some steam again in November to hit $1800 but the expected resumption of its bull run did not materialise as it once again drifted down. Now with the help of Ben Bernanke and the Fed, gold is looking distinctly bullish.

Expect QE3

For those who may have missed it, Bernanke has vowed to keep US interest rates at zero until late 2014, an extension of one year opening the way for the next round of Quantative Easing, aka money printing.

This has been taken as a further substantial nail in the coffin of the devaluation of the dollar with its inevitable consequence of eventual hyper inflation. In this context stocks, gold and silver in their familiar role as hedges against inflation by being preservers of wealth are back in fashion with those fund managers and short term investors who deserted the metals in the Fall.

Record Chinese Bullion Buying

Other boosts to the gold price have been the increase in US gold futures activity, bullion buying by the Chinese with bullion imports from Hong Kong having tripled in one year, the failure so far of any credible resolution of the Euro crisis and bullish estimates from Citigroup that the the price will top $2400 an oz  and Morgan Stanley opting for $2200.

Expect a Dramatic Increase in the Price Of Gold

Now Eric Sprott, billionaire chairman of Sprott Asset Management and a well respected and successful financial pundit has expressed the opinion that continued Chinese aggressive buying of gold will inevitably lead to a “dramatic increase in the price”.

Although we can expect some short term set backs as profits are taken it now seems a better than even bet that the gold price will continue to rise, with the next major technical barrier to overcome being resistance at the $1800 an oz. level. Either way this does not look a good time to get out of the gold and silver sector or be tempted to go short. Right now being a buyer is a better bet.

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