Monday, September 19, 2011

The gold price yo-yo: from $1,500 to $10,000, anything is possible

Year-to-date, the yellow metal is up 30% despite taking a $100 per ounce hit over past week

If there is one asset class that has analysts and market-makers’ opinion split wide open, it’s got to be gold. The price of the yellow metal has defied gravity and has gone up 555 per cent in 10 years, from an average $283 per ounce in September 2001 to $1,854 per ounce in September 2011.

The last couple of years, during which a large proportion of the world’s investing population seems to have grown a liking for the bullion, the price of the metal has doubled, from about $930/oz in September 2009 to the current $1,830 an ounce.

The yellow metal seemed unaware that ‘experts’ were calling it a bubble since the beginning of the year, and made numerous lifetime highs in 2011 – the most recent on September 6, when it touched $1,920.30 per ounce.

“There is a slow-motion train wreck going on in Europe at the moment,”

Nick Trevethan, senior commodities strategist at ANZ, told Reuters. That means gold, which is seen as a safe haven alternative to investing in slow-moving/crashing economies of the West, or the overheating Asian economies of China and India, is perhaps going to gain further.

But as with a vehicle that is cruising at close to its top speed, the ride has begun to get bumpy. The yellow metal declined about $50 an ounce, or 2.6 per cent, yesterday to close at about $1,810 per ounce, and after having gained some momentum this morning, is range-bound between $1,820 and $1,830/oz.

“Gold prices are stuck in a sideways channel and need to decide on the direction,” said Phil Streible, Senior Market Strategist, MF Global. “If we break through the upside on $1,875/oz, then we could see the lifetime highs threated once again,” he said, but warned that, in the very short term, there is more of a downside risk than upside.

Year-to-date, the safe haven metal is up 30 per cent, despite taking a $100 per ounce hit over the past week or so, and analysts are still gunning for $2,000 per ounce by the end of the year. However, the move from $1,800 to $2,000 could be a circuitous one for the bullion bandwagon, with many experts not ruling out a drop to even $1,650 an ounce in the interim.

“It’s quite fascinating to note that gold made another lifetime high last week,” Jeffrey Rhodes, CEO and Global Head of Precious Metals, INTL Commodities DMCC, said on Dubai Eye radio this morning. “While forecasts for $2,000 an ounce by the end of the year are still in place, it could fall to $1,700 or even $1,650 per ounce before that,” he warned.

On the other hand, there are those like Marc Faber, publisher of the Gloom Boom and Doom report, who said last week that “according to some statistics, the gold price today should be worth between $6,000 per ounce and $10,000 per ounce.” Now that’s a level that the metal cannot reach without an unprecedented level of speculation, some of which may actually be on the way.

“Despite a fall in prices over the past week, the speculative market for gold and silver is starting to look more positive than it has in recent weeks,” Marc Ground, analyst at Standard Bank, said yesterday in remarks sent to ‘Emirates24|7'.

“Looking at equity markets, risk-off is definitely the order of the day.

The question is: will investors continue to seek the relative safety of the dollar and shun precious metals? Given that uncertainty concerning the health of the US economy persists, we expect investors to return to the safe-haven of gold,” he said.

Citigroup, the global banking giant, said recently that gold has a one-in-four chance of spiking to $2,500 per ounce. The investment bank had previously considered that gold had a 5 per cent probability of achieving the $2,500/oz target, but in a note published last week, it said it had increased its gold price estimates in order to accommodate the impact that global financial tension is having on the metal.

“However, we expect those tensions and concerns to dissipate over time and do not believe that (price sensitive) jewellery demand will be able to make up for the loss of investment demand once sovereign financial tensions ease,” the banks’ analysts said. – Source: