Gold Soars Through $800 An Ounce

November 24, 2008 | By | 1 Reply More

At long last the confines of $700- $750 an ounce that have prevailed for a month have been well and truly broken.

Rising over $50 late last week, gold breached the $800 barrier on Friday and in early Monday morning European trading has soared to over $817 an ounce in the first three and a half hours of business (0530 EST).

Lets see what has changed to bring about this sudden rise. Lets face it, many respected analysts have been forecasting for months that gold will break into four figure territory by the end of this year. 

 

Most, including ourselves, expected this momentum to pick up speed much earlier as the US has got deeper and deeper into debt, the consequences of which have not been rocket science to predict.

Demand for the physical metal has remained robust for a good many weeks now, with reports of record premiums, mints imposing rationing on coin and bullion retailers, and buyers waiting up to two weeks for delivery.

Global gold supply is down for yet another year with no improvement in the disruption that South African producers have been experiencing for over a year. Australia, the worlds third largest producer, is reportedly down 20% due largely to increasing costs making it uneconomical to keep some mines open.

Friday’s action on Wall Street saw significant rises in the Dow, S & P 500 and the Nasdaq, although not enough to offset losses from earlier in the week.

To a large extent this rise was due to short covering before the weekend as much of the US governments` bail out announcements are coming when the markets are taking a breather so savvy speculators do not want to get caught on the hop.

Previously a show of strength, however short lived, has not encouraged gold to break out of the mid $700s, if anything the reaction has been the reverse with a modest down turn taking place.

The revelation that the Saudis were major buyers of gold bullion in October, and reported here over a week ago, had little or no effect on the price.

We could go on about the numerous other factors that have been in the public domain for weeks or even months that logically should have provided fuel for a rise in gold prices that just did not happen.

The dollar began a long overdue sign of weakness as last week drew to a close. That is obviously bullish for gold but, unless the investment community has been burying its head in the sand, there has been no where else for the dollar to eventually go but to the monetary dumping ground, closely followed by sterling, the Euro and virtually every other leading currency, bar maybe the yen.

A weakening dollar and every expectation of eventual galloping inflation would not, we would think, encourage long term investment in US Treasuries with their low yields.

OK maybe for the brave a short-term play but we would steer very clear of this market as, so the media tells us, treasuries have been providing a flight to safety!

In the worsening global financial and economic crisis, did it only dawn on investors on Friday that gold was the only realistic route to wealth preservation? We think not!

By Friday, had the hedge and other funds at long last stopped selling to meet withdrawal demands, if so, many of their investors will have cash looking for a safe haven?

Could this twofold effect have been the market mover?

We gather from our technical analyst friends that a double (or was it treble) bottom took place and that provided a strong signal for a price rise. Another talked about a ‘reverse head and shoulders’ as also a buy signal.

Bearing in mind that very many traders and investors use technical indicators either exclusively or to support the fundamental decisions they make, there seems little to doubt that these optimistic indicators had their effect.

Many gold buffs are persuaded that there has been significant market manipulation by governments and their tame bankers endeavouring to maintain the value of the dollar by keeping down the price of gold. Some more committed conspiracy theorists believe that these efforts are criminal.

Has government thrown in the towel and now decided to allow the dollar to submit to market forces and let gold follow its historic course as the ultimate safe haven for wealth preservation?

As an aside, and without going into any detail, we have heard the argument that creating more dollars will eventually make paying the national debt less onerous. No comment! 

When Wall Street opens today we expect some rapid moves in gold one way or the other.

Whether this short bull run will run out of steam as profit takers cash in or will it be sustained and develop as the investment community concludes that gold and probably silver, are the most likely to offer sustainable profits while the crisis runs its course?

The next few days and weeks could be very exciting for gold buffs everywhere.

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Comments (1)

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  1. Frank says:

    The gold price will hit the $1000 again next year. I’m pretty sure. Obama’s bailout programme won’t work. Gold rulez! :-)

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