Is Gold Ready To Boom Or Bust?

With gold prices dropping $90 per ounce last week, speculations abound about whether gold is poised to boom or bust in 2010. While some experts point to a …

With gold prices dropping $90 per ounce last week, speculations abound about whether gold is poised to boom or bust in 2010. While some experts point to a slow down in central banks investing in gold as a sign that gold prices will decline, other experts believe that the current decline in gold prices is a temporary correction and that hyperinflation fears will further drive prices up in 2010. See the following article from Commodity Online for more on this.

It was days of hype, golden talks and frantic buying of the yellow metal for every bullion trader and investor for the whole of November and the first week of December. Gold, the hottest commodity to invest in, was hailed as the right replacement for the declining dollar as the precious metal soared to a historic record of $1225 last week.

But as fast as gold price went up, it has burst as the markets across the world got into the second week of December. Gold prices have crashed below $1140 per ounce mark, and it is now trading around $1135, a big $90 dip for an ounce compared to last week’s peak price.

So where is gold headed? Is gold price on a bubble, as the Chinese central bank—the People’s Bank of China—warned last week? Or is the declining price of gold the best opportunity to buy the yellow metal? Some say gold is set to crash further, to around $1000 per ounce or below by the end of December, meaning that gold price was, indeed, on a bubble, and thus is bursting, slowly, but surely.

“Gold has gone through the record prices for the year 2009. Now, gold will not go to the highs of $1225 per ounce this year because of rising dollar value that has been boosted by the positive US employment data, news of receding economic recession and improving stock market conditions,” says Anthony Stuart, an independent bullion analyst based in London.

Stuart has the following reasons to offer why gold price could be bursting and could plunge around or below $1,000 per ounce by the end of December:

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First of all, Stuart says, gold price has been on a boom thanks to the rampant speculation that has been on the trading floors of Comex. “Physical gold market is in acute short supply as it is paper gold that is being traded these days. This means that there is not much physical gold trading happening, even though the yellow metal price is soaring. This is a paradox and this is reason enough for the gold price bubble to burst,” he points out.

Secondly, Stuart argues that, China—the largest producer and the biggest consumer of gold, as per the latest GFMS survey—wants gold prices to crash. “In fact, China wants gold prices to come down below $1,000 and the Chinese central bank and the official bullion sector is eagerly working towards that. China wants to build up its gold reserves and buy gold from the International Monetary Fund (IMF) cheap, below $1,000,” he pointed out.

Thirdly, India that triggered the gold price rise by buying 200 tonnes of IMF gold last month now wants to wait some more time to decide whether to buy additional yellow metal reserves. “India paid a really high price to buy the IMF gold. India is not now keen to buy more gold from IMF above $1,000 per ounce,” says Stuart, arguing that all these fundamental reasons are pulling down gold prices.

So is gold price set for a heavy crash, as Stuart argues? If so, the gold bubble warning that the Chinese central bank issued last week would come true.

But not everyone is as pessimistic on gold as Stuart. Acclaimed gold analyst and bullion investor Jim Sinclair has different arguments suggesting that gold prices are facing only temporary corrections these days and the yellow metal can only go up, not come crashing down.

Here is what Jim Sinclair argues:

Gold reacts as currency support for the dollar enters mid June to a slow decline (that is the official definition of a strong dollar policy, really).

End of 2nd week going into the beginning of the 3rd week of June Gold launches towards and this time through the neckline of the reverse head and shoulders formation.

Gold rises to $1224 where it hesitates. The OTC derivative market takes on the dollar as short sellers into dollar support.

This OTC derivative currency short position builds. It is the US dollar where Armstrong will get his WATERFALL. The main selling takes place when Israel makes a major miscalculation.

Hyperinflation is always and will continue to be a currency event. Hyperinflation will be a product of the upcoming massive OTC derivative short dollar raid. Should I be correct in the gold price action going into late June, it will fit Armstrong’s criterion for a move to $5000.

Alf’s work permits an over-run of the gold price to $3500 in the major 3rd phase, indicating overruns into the major 5th.

Stuart has a bubble view. Sinclair has a boom view. And leading global commodities investors like Jim Rogers still predict that gold will zoom to anything above $2000 per ounce by 2010. These days, you are going through differing arguments on whether gold price will boom or burst. Be your on your wise judge while investing in gold and other bullion products.

This article has  been republished from Commodity Online. You can also view this article at
Commodity Online, a commodity news and analysis site.

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