Gold was bound to rise once the selling abated . . . and each day it remains in $800+ territory, the technical picture and the yellow metal’s good fortunes improve.
Archive for November, 2008
Gold’s relative price strength in recent days — in the face of plummeting U.S. consumer and producer prices, declining prices for oil and other (non-precious metals) commodities, and lower multi-year lows in world equity markets — suggests that the yellow metal, technically speaking, may be building a solid base in the $770 to $800 range from which to embark on a sustainable advance into higher territory.
Interestingly, gold has been outperforming silver and the PGMs, suggesting that investors and traders are differentiating among the metals, favoring gold as a monetary asset, safe haven, and hedge.
Deflation in the Air
With all the talk suddenly about deflation, gold- and silver-market participants need to know just what effect deflation might have on these precious metals.
Here’s the text of my November 19th interview with Geoff Candy of South Africa’s MoneyWeb Radio.Â For a podcast of the interview click here.Â The bottom line quote: “It wouldn’t surprise me if in our lifetimes we never see gold back below $700/oz.”
GEOFF CANDY: Jeff Nichols joins us now. He is the MD of he American Precious Metals Advisors. Jeff, I was reading one of your blogs, NicholsOnGold.com, about where gold might go, and whether we’re at an interesting turning point in gold.
But there was also a report out by the World Gold Council, saying that third-quarter demand for gold is the highest on record, at around $32bn, which is 45% higher than the last record in terms of quarterly demand. The price not reflecting that?
JEFF NICHOLS: Yes, I think we’ve seen a dichotomy or a divergence in the gold market between what’s going on in the physical world and what’s going on in the paper markets, and between dealers and institutional players.
Despite gold’s latest weakness and the possibility of further breakdown, I believe we are nearing a turning point in the tenor and direction of the market.Â Before long, gold will begin a new and sustainable upward march.
Until then, with the yellow metal in the $700 to $730 range - and certainly at lower price levels - price-sensitive demand from key Asian and Middle Eastern markets should stabilize the market.
With $1000 gold very likely in the next year - and still higher prices beyond - the risk/reward ratio is very much skewed to the plus side.
Commodity Disinvestment Running Its Course
As I have written in past Gold Briefs, much of gold’s weakness in recent months can be blamed on a wholesale indiscriminate shedding of long commodities positions.Â Often sellers were not holding individual commodities but baskets or indexes that included gold - so gold got dumped with everything else.