Gold Unable To Break Through

November 18, 2008 | By | Reply More


Another week goes by and still gold has been unable to break through the $700-750 an ounce barriers.

Arguably there are some fundamental indications that gold may stay range bound for a while yet. It may even come as a relief to gold traders if there was a decisive move below $700 then at least the deadlock would be broken and open up new opportunities.

However more conservative investors in for the long haul, some of whom will be suffering hefty losses, may not be best pleased.

With so many different views and contradictory news it cannot be a surprise that the gold price meanders within a relatively tight range compared to the volatility that traders enjoyed between January and October this year.

Lets take a look at some of the opinions, news or rumours that have circulated in the last seven days:

  • Members of the Saudi royal family are said to have bought around 140 tonnes of the yellow metal in the last few weeks.
  • Sellers of December contracts will have difficulty if asked for physical delivery, as there is a shortage of bullion.
  • Physical premiums are at record levels above the paper price.
  • Demand in India is high as a protection against the falling value of the rupee at the same time as the countries gold buying season gets into full swing.
  • “Gold is caught between being a safe haven investment and being weighed down by the US dollar. Trade has been lacklustre of late because of this lack of direction” – researcher at the Shanghai Tonglian Futures Coy.
  • A leading well known analyst points out that contrary to popular opinion, it is a myth that gold has risen in times of crisis in the twentieth century. He gives some statistical evidence that the reverse has been true.
  • It has been reported that Iran has added significantly to its gold reserves.
  • Global economies are set for a period of deflationary pressures, considered to be bearish for gold despite some historical evidence to the contrary.

Some pundits are suggesting that inflationary pressures will surface as an economic bottom nears, causing gold to surge.

Bearing in mind that precious metal dealers may be biased, we note that one dealers’ view is that as the level of distressed selling eases so the “need for safe haven investments will grow”. To be fair he may be talking about silver as well as gold!

Some statisticians are calling that an upward key reversal is in place and to expect higher prices very soon. We seem to remember hearing that more than once in the last few months.

Another round of cutbacks in oil production is likely in the continuing effort to drive the price above the $80 a barrel needed by the oil cartels. The BRIC nations are making up for the decline in US consumption.

Exploration and development by oil companies is being cut back as costs soar and the price stays down. As the demand for oil outpaces production the cost goes up, resulting in a falling dollar aided and abetted by the printing presses working overtime to sustain the governments ever increasing costs of bail outs.

The dollar price of gold then rises with the cost of oil. QED.

There you have it, this weeks’ pros and cons. The market always has the last, often unexpected, word.

We can offer only this very guarded comment expressed in the context that the stock market still seems well off a bottom while gold is at least remaining relatively constant – investors keep your nerve but consider your options if the price swoons below $700 an ounce.



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