Gold Price Set To Correct
Email this article By Kishori Krishnan Exclusive To Gold Investing News
We would not like to be a party pooper, but the near term risk for gold remains very much on the downside.
Throughout 2009, gold price has been pretty steady. No doubt, it ended the year 24 per cent stronger than from the start of the year, but one needs to understand the why’s and how’s of the `supposed’ bull run.
The fact that central banks were deserting the US dollar and shifting their holdings into gold brought about panic in the investing community.
An added catalyst for the surge at the end of 2009 was the Reserve Bank of India’s purchase of 200 tonnes of gold at a high.
Gold price shot through the roof. Starting the year at a London fix of $874.50 an ounce, gold rallied through $1200/oz to hit a high of $1226.60 early December. Last week, the metal was more than $140 lower at $1085.25.
Moreover, most analysts are predicting that the greenback’s slide has already finished its run. There could be a possible buy-up of US dollars, given that monetary agencies around the world are preparing for a rise in interest rates sooner than expected.
And if this happens, and the US dollar takes off in the New Year as nations attempt to anticipate the expected rise in interest rates, gold is bound to hit terra firma.
Silver and platinum prices too might follow.
Sorry to be the bearer of bad news, but the fact of the matter is that the gold price has been held hostage by the strength of the US dollar. And that despite holding promise that it would enter the new decade by posting fresh highs, the gold bull’s reign has clearly been secured.
End of decade
On December 31, gold futures rose, capping the ninth straight annual gain. Gold futures for February delivery climbed $3.70, or 0.3 per cent, to $1,096.20 on the Comex division of the New York Mercantile Exchange.
“Gold is my favorite because it’s real and honest money,” said Michael Pento, the chief economist at Delta Global Advisors Inc. “It prospers in an environment where there’s currency depreciation.”
But check out this report by Resource Capital Research (RCR) in its RCR Gold Company Review for the December quarter 2009 – “There is a high degree of speculative momentum buying behind gold’s recent surge, and without support from demand fundamentals the near-term risk for gold at the moment remains very much on the downside. For that reason, we are cautious on the medium term outlook for gold, and expect it to trade down from current overheated levels, into the $1,000 to $1,100 an ounce band in the next six months, with periods of US dollar weakness likely to produce short term rallies,” notes RCR.
As for the buying by central banks, RCR has said that such a sustained move “was not realistic” given the liquidity of physical gold markets and also given that central banks are inherently conservative ‘value purchasers’ and unlikely to be aggressive buyers of a supposedly ’safe haven’.
The inherent risk in buying the yellow metal at this point also explains what funds, dedicated to the metal, are doing. An official of BlackRock Gold and General says meaningfully, “While we have always believed gold should be a small part of a diversified portfolio, we did not want to see widows and orphans put their life savings into it.”
Don’t miss the cautious underpinning of that message.
Wither 2010?
Analysts say the outlook for 2010 depends very much on whether US interest rates start to rise, which could lift the dollar and consequently knock gold.
Not to forget the fact that cash-based markets such as precious metals are likely to experience inflation as record amounts of new money have been printed during the past year.
There are optimists though. BBC’s business editor Robert Peston says: “If we are in for a period of slow steady recovery, in which interest rates rise, gold is greatly overvalued. But if the dollar and sterling were to plunge – well, gold would glisten even more than it has.” Which way things fold is anyone’s guess.
So, for the first week of the new year, we think gold will continue to correct its position. You have been warned.
Tags: central banks, Comex, gold investing, gold investment, gold news, gold price, greenback, investing in gold stocks, monetary agencies, new decade, newgold futures, paper currency, platinum prices
January 1st, 2010 at 7:47 am
To the editor,I would expect that any publication, with the name of Gold Investing News, might have a writer that at least has a fundamental concept about gold.The individual who wrote this needs a refresher course, badly!Gold has been in a bull run for nine years!!! Gold has gone from $250 to $1227 since 2001,a $1000 increase. Whatever you pay this individual, you have some change coming…sorry, not meaning to be rude,but the article is laughable. Ed Kochan,DDS
January 1st, 2010 at 8:40 am
No single prediction for what the year 2010 holds for the precious metals markets has any more validity than any other since these prosnostications are not based upon any hard evidence, but rather upon PAST actions. Who among us knows what the future holds for any market? At best, these are best guesses, and should be viewed as such, and nothing more. So. DDS Ed Kochan ought not call any other prediction ” laughable”. It is HIS “authoritative ” conclusion which is ” laughable”.
January 1st, 2010 at 9:07 am
2009 passed off as “golden” year for Gold.It was the year when not individual investors but countries like India showed real interest in increasing their physical buying.The future of global economy is in its nasent stage in recovery.Many uncertanities lies ahead and till then gold will raise again and again inspite of ocassional correctons. In recently china has encouraged their people to invest in gold. So one need not be so pessimistic. Large middle class people in India are accumulating gold even at the prevailing rate to-day and there will be huge demand to support gold price at fall.
January 1st, 2010 at 10:57 am
Simply put….. the long term fundamentals for gold/silver are firmly in place….. BUY on the dips is the appropriate strategy for now…..
January 2nd, 2010 at 12:39 am
what ever may be correction,systematic purchase of buying physical form of gold is no problem.each and every one should invest in gold 3% of their income.
January 4th, 2010 at 7:13 am
She may be right. The last time gold exploded upwards, in 2006, it took more than a year before gold bettered that ‘06 high. Gold moves in waves, and sometimes gets ahead of itself.
The questions to ask are: What presently-unanticipated future conditions would push gold up above $1200? How long would it take before they become evident enough to push gold up above that level? In ‘07, it was U.S. inflation ramping up. Remember the CPI surge at that time?
January 4th, 2010 at 11:48 pm
last month in my view i told gold may come to $900.if $ strengthened it may come to $600 level.these are temprevery possisions.onward prices lead to more than$1500 level in future.