Can Gold sustain the $1000 breach?
Gold reached an 18 month high at $1,017.50/oz in European trading last week. Gold and gold bullion has found its footing in the low $1,000s/oz and looks set to launch an assault on the all time record nominal high of $1,033/oz (on March 17th 2008). It was 18 months ago when gold surged to its record high and much consolidation and base building has been done in the last 18 months.
Traders said that worries about the re-emergence of inflation as central banks continue to pump cheap money into the global economy also contributed to the price jump. In addition, the move back up to $1,017 can be partly attributed to Barrick Gold looking to buy large quantities of the metal to close out hedges.
While small investors and jewellery owners have been selling, high net worth individuals, hedge funds, institutions and large banks are diversifying into gold in a more substantial way. The elephant in the room and one that is being studiously ignored by some bears and those who have been calling the market wrong is the ‘China factor’. With the Chinese central bank worried about their vast dollar holdings and the Chinese government encouraging their citizens to own gold, Chinese demand alone could propel prices to much higher levels.
Gold has attracted investors since the collapse of Lehman’s Brothers last year as an insurance against the financial crisis, but also amid concern that the extraordinary steps taken by central banks to prop up the global economy could lead to higher inflation in 2010. Gold futures were little changed on Wednesday 23rd September, trading above $1,010 an ounce as investors awaited the Federal Reserve’s announcement on monetary policy. “Further weakness in the greenback could see the metal breach last week’s high, but gold is vulnerable to a test back to $985 to $990 should the dollar bounce.” said James Moore, an analyst at TheBullionDesk.com, in a note.