EXPECT MORE RISES IN THE GOLD PRICE
HEAD OF DERIVATIVES, GFT
DESPITE stock markets being jittery after a surging summer, investors and speculators didn’t have far to look before finding an alternative home for their trading buck. Gold is glittering once more, coming close to the $1,000 per ounce price tag, and trading levels on the spot gold CFD are soaring too. But can the rally continue in the second half?
In hindsight it was all too obvious. Economic pessimism and a general scepticism that we are through the worst of the credit crunch recession have been gaining traction recently, bringing gold’s classic safe haven status into play.
The US dollar has also been under pressure, which in itself tends to cause a flight to quality; the inverse relationship between gold and the greenback is a consistently high correlation. That dollar weakness is centred on mounting inflation concerns – another classic scenario from which the price of gold historically benefits.
Even the time of the year is on the precious metal’s side. September is historically the best month for gold. Since 1989, gold has risen in the month of September 80 per cent of the time, better than any other month of the year.
Analysts often attribute this trend to India, the world’s largest consuming nation of gold, where a combination of the end of the wedding season, the beginning of the Diwali festival, and to the end of Ramadan in the Muslim world, all typically characterised by celebration and gift-giving.
Gold’s rally has also been fuelled by technical buying, namely a breakout of trading ranges we have been stuck throughout the summer. If we see a push through the $1,000 mark then the next areas of resistance for the spot price are likely to be $1,006 – the year’s high from back in February. From there we would be looking at an attack on the all-time high of $1,032 set in March 2008.
While a profit-taking pullback to the $960-$970 level is also possible in the short term, I can’t argue against a new record price being set before the end of the year. The momentum gained from all the above conditions is effectively underpinned by the Chinese government, itself a prodigious buyer of gold and now is reportedly encouraging Chinese citizens to buy the metal after significantly relaxing controls on the buying of precious metals. By next year China is expected to overtake India as the world’s largest gold consumer so demand is not in doubt.
I guess one man’s “barbaric relic”, as legendary economist John Maynard Keynes famously put it, is another’s rather well-heeled trading opportunity.