Until recently, many doubted that gold could sustain a price above $1,000. However a recent surge has created many believers in gold, and the weak dollar is helping matters. The following article from Commodity Online has more on the state of the gold market.
When the London afternoon gold fix on 1st September pinned the price at $955.50/oz few considered that a break-through of $1,000/oz was imminent. Yet only a week later it fixed in London at $1,000.75/oz, only the fourth time in history it had breached $1,000/oz, says a report from Fortis Metals Monthly.
By the 11th it had fixed at $1,008.25/oz, and, after a small wobble on 16th September, it reached a new all-time high of $1,018.50/oz on the 17th September – in intra-day trading, its high remains that of March 2008. The latest rally in gold’s dollar price has clearly been helped by a decline in the dollar – by 17th September the dollar was trading at 1.473 to a euro, compared with 1.390 in June, when gold reached $980/oz, its previous highest since February.
Back then it hit $989/oz, with dollar/euro at just 1.284. The dollar’s moves against most other currencies have been similar. So, in many currencies the February 2009 price remains the all-time high, even ahead of March 2008, when the dollar was extremely weak (1.572 against the euro).
Nevertheless, the dollar remains about 10% higher than the lows seen in March and April 2008 and, given the turnaround in the US economy there is a growing chance that the US Federal Reserve will begin tightening monetary policy by raising interest rates in 1H 2010 – which would in turn strengthen the dollar and inevitably knock the gold price.
Barrick’s news reminded us that there is a world beyond what happens to the dollar and inflation. If Barrick’s buy-backs were mostly concentrated in August, or even September, then gold’s rally suddenly becomes far more explicable. But gold has held onto those gains and, although speculators are piling in (the ratio of longs to shorts in the CFTC’s new ‘managed money’ category is 251), the market doesn’t seem feverish.
A limited pullback is the most likely short-term move, but in the mid-term a rally far beyond where we are today will largely depend on inflationary trends. Short-term London pm fix: $965/oz-$1,020/oz.
Some Gold News
Sept 18th: The IMF’s executive board approved the sale of 403t of gold from its reserves. It said it would inform the market before any on-market sales happened and report regularly on their progress.
Sept 8th: Barrick Gold, the world’s largest gold miner, announced that it had cut 2.4 Moz from its hedge book between 1st July-7th September, and that it would cut the remaining 3.0 Moz within 12 months. This would leave it unhedged for the first time in 22 years.
Sept 1st: Indian gold imports were about 13t in August, down 85% from the 98t imported in August 2008, according to the Bombay Bullion Association. In the first eight months of the year India’s imports were 84.6t, down 68% compared to the same period of 2008.
Courtesy: Fortis Metals Monthly
This article was republished from Commodity Online. You can also view this article at Commodity Online, a commodity news and analysis site.