By Kishori Krishnan Exclusive To Gold Investing News
Its bargain hunting time. Gold continues to be the bright spot in the bullion market, with many investors timing the dips as a good opportunity to buy more of the precious metal.
For the first time in four days, gold gained in New York on speculation that a weaker dollar and the lowest prices in a month would boost the bullion’s appeal as an alternative asset.
On Friday, the gold price had weakened, falling 3.1 per cent last week to $1,093.67. The price declined amidst a turbulent week in the financial markets.
Suffering its worst two-day decline in over a month, the gold price dropped for the third straight day on Friday to close the week down by $37.54 per ounce. And that was when many smart investors moved in.
All the fears over markets and the global economic situation saw the gold spot price edge up to more than $1,100 an ounce on Monday morning.
Goldessential.com reported that gold’s uptick was further aided when the market poked back above $1,100 an ounce and hit some buy stops, which are pre-placed orders triggered when certain chart points are hit, in light trading.
Physical buying in gold, particularly after the recent price retreat, has been “extremely strong,” added a dealer.
“I’m bullish on gold” this week, said Gavin Wendt, senior resource analyst at Mine Life Pty in Syndey. “In an economic environment full of uncertainty with respect to the outlook for US economic growth, gold remains the one constant whose luster is not only untarnished, but in fact greatly enhanced.”
Gold futures for February delivery added $6.70, or 0.6 per cent, to $1,096.40 an ounce on the New York Mercantile Exchange’s Comex unit. Gold for immediate delivery in London was 0.3 per cent higher at $1,096.82.
US President Barack Obama’s idea to limit financial risk-taking hit the broader commodities markets at the end of last week.
Obama’s plan to restrict banks or financial institutions from associating with a hedge fund or a private equity fund, caused stocks and commodities to tumble.
“The noose certainly seems to be tightening around the gold bulls with President Barack Obama’s proposal to limit financial risk-taking, especially by the banking sector and also due to the growing expectations that China will continue to tighten its monetary stance,” said Pradeep Unni, senior analyst and trader at Richcomm Global Services.
There were also concerns that the tough new proposals by President Obama would curb investment flows into commodities.
“We’re seeing a rally in the euro which is helping gold a bit higher. Earlier the market was liquidating, partly because of a stronger dollar and partly because of President Obama’s speech,” said Afshin Nabavi, head of trading at MKS Finance.
The proposal to limit risk-taking by banks, preventing investments in hedge funds and private equity pools, may cost Goldman Sachs Group Inc $4.67 billion in revenue next year, JP Morgan Chase & Co said in a report.
Investors poured $60 billion into raw materials in 2009, according to a Barclays Capital survey, fueling the biggest commodity rally since 1979.
“President Obama’s restrictions on bank trading could undermine the gold market, if it prevents investment from moving into risk markets.” said Tom Pawlicki, an MF Global Inc analyst in Chicago. “Gold has correlated well with risk markets in the past year.”
Historically, the month of January has been a very sideways month for gold with February and March being extremely bullish. If one were to think this pattern would occur again, gold could easily surpass $1,200 and challenge $1,300 by March, state analysts.
Some argue that the seasonal pattern has the bias over technical pattern because fundamentals are more stronger than technicals. Also, after the great performance of gold last year and gaining popularity as the next bull market, there would be many huge portfolios being adjusted with more weightage given to the yellow metal.
Some analysts indicate that we are the cusp of a rally which should accelerate next week or early February.
Like gold, silver tends to rally strongly in January and February. But while gold retreats modestly at the end of March, silver consolidates.
Spring is always an exciting time of the year for speculators, analysts maintain, and optimism grows with the lengthening daylight and warming temperatures.
In April and May, gold starts rallying again.
Get ready for heady times.
Bulls in the fray
Jeffrey Nichols, senior economic advisor, Rosland Capital LLC is confident that gold will climb to $1,500 this year.
“I think it very unlikely that gold will ever again fall below $1000 an ounce…and, if it does, this would be a great buying opportunity for long-term gains rather than a reason to turn bearish.”
Jason Hamlin at Goldstockbull.com said: “I believe gold is nowhere near a top and will reach a new nominal high between $1,300-$1,500 during 2010. Silver will outperform gold reaching $24 or higher as the gold/silver ratio dips towards 55.”
He added: “Remember, gold can perform well during periods of inflation or deflation. While I believe deflation is the greater threat during 2010…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.”
Adds Martin Hutchinson, of Money Morning: “Consider the amount of money sloshing around the world right now - China’s $2.2 trillion in reserves, India’s $285 billion in reserves, all of the money in central banks throughout the Middle East. If all the serious money charges into gold and gold really gets going, you’ll see a tremendous spike in prices.”
Standard & Poor’s has also increased its metals price assumption by about 30 per cent this year, citing higher spot and futures prices, “which in most cases have rebounded strongly in recent months.”
The analysts raised S&P’s gold price assumption by 13 per cent from $800 per ounce to $900/oz this year. Gold price assumptions were raised by 23 per cent from $650 to $800 for the next year, and by 12 per cent from $625 to $700 for 2012.
S&P has said, “Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices.”
Over the course of last week, the entire gold sector - gold bullion, gold ETFs, and gold mining stocks - faced selling pressure alongside more traditional investment classes.
There was a flight to liquidity of the US dollar as commodity currencies and emerging market equities were liquidated, analysts said.
Some analysts insist that the real gold bull market is just beginning and that “the gold shares have a lot further to run.”
Adrian Ash of BullionVault recently wrote that holding or buying gold today is a “bet on things staying all too much the same.”
Now, wouldn’t you want gold price to remain the same into the new year?