Gold holds its value despite a concurrence of normally adverse factors
Gold has shown a steady performance despite a number of economic
factors which would normally be seen as bearish for the metal price.
Author: Lawrence Williams
28 November 2008
Australian research organisation, Resource Capital Research introduces its
latest report on gold with the following statement: "The key factor for gold
in recent months is not that it has not appreciated significantly, but that
it has essentially held its value in a period of a strong US dollar,
decreasing inflationary expectations, collapsing oil and commodity prices
and aggressive hedge fund selling."
While this may be a statement of the obvious, given that all the factors
quoted are normally considered adverse for the gold price, the yellow
metal's resilience in the face of so many negative pointers suggests a
considerable degree of underlying strength.
RCR points out too that over the past three months gold only fell 3.8
percent - and this was before the latest mini surge in price - while for the
Australian gold mining sector currency movements mean that the price had
actually risen 32 percent in terms of the Australian dollar - a considerable
boost to a mining sector where costs are primarily Aus dollar denominated.
This applies also, of course, to other gold producing countries where the
strong US dollar has led to a significant rise in price in terms of local
currencies
The organisation points also to a strong increase in investment demand for
gold in terms of record quarterly movement of funds into gold ETFs and the
well documented demand for coins and bars which has led to temporary
shortages and delivery delays in many places. Jewellery demand has also
remained strong in India and China although it has been weaker in the West.
RCR reckons that the strong increase in demand has been sufficient to mop up
the widespread disinvestment resulting from hedge fund selling, margin calls
and unwinding of forward contracts and that shrinking cash and bond yields
will support further investment in gold as both a safe haven and a store of
value - perhaps marginally different expressions of the same factor!
Looking ahead RCR feels "The near term outlook for the gold price remains
closely tied to investment demand from safe haven buying, which has
underpinned the price in recent months and is looking increasingly strong.
If gold disinvestment tails off there is potential for further price gains.
There is additional upside for a major gold price breakout should the US
dollar lose its current safe haven currency status, through a further
decline in the US economic outlook relative to other world economies in
2009."
RCR expects gold to trade in the range of US$750/oz to US$850/oz in the next
month or so, followed by a potential upturn to around US$900/oz in 1H09
assuming U.S. economic conditions deteriorate relative to other major
economies and the US dollar weakens.
From www.mineweb.co.za