U.S.'s largest gold dealers, Blanchard & Co. In New Orleans reckon that the current upwards trend is not only sustainable, but also that it should continue long term.
Blanchard's chairman and CEO, Donald W. Doyle, comments that The current rise in the price of gold and its projected sustainability can be attributed to the decline of the U.S. dollar and mounting pressure from the continuing rumble for it to cease being the currency of choice for oil trading. Whether or not that will happen remains to be seen. However, it does show how fragile the dollar is right now.
The jump up in the price was possibly precipitated by a report in the UK's Independent newspaper - since denied by some of the countries quoted - that the Gulf States, along with China, Russia, Japan and France are seeking an end to the oil trade being undertaken exclusively in U.S. dollars with the dollar being replaced with a basket of currencies including the Japanese yen, the Chinese yuan, the Euro and gold. Although as noted above this has been denied officially, there is probably little doubt that such an option has, at the very least, been the subject of some discussion.
Indeed this does follow on public statements that some Central Banks have been raising the idea of replacing the once mighty U.S. dollar with a similar currency basket in reserves and one does see some momentum developing in such an idea.
In the past spikes in the gold price of this type have been followed by heavy profit taking which has seen prices decline sharply, but Doyle doesn't see that happening this time. Indeed there do seem to be signs of stabilisation at or near the peak levels which, if sustained, will likely lead to further peaks being reached.
In this market, the price moves have brought in new investors, Doyle says. These investors are looking at the potential long term challenges of the dollar and are aligning their portfolios accordingly.
Doyle says he thinks many investors were waiting for the gold market to have a higher record daily close prior to entering the market, and investor demand for physical gold has been robust at his investment firm.
Right now, there is little or no inflation within the U.S. economy, yet gold is hitting new highs, Doyle says. Imagine what will happen when the velocity of money increases and all the dollars printed by the Fed make it into the overall economy - gold will push higher and higher.
The report in the Independent may well have been one of the triggers moving the gold price upwards and onwards, but it does seem that the markets are again nervous enough about the strength or otherwise of the economy and the prospect of runaway inflation, and a corresponding continuing weakness in the U.S. dollar. Safe haven investment is back as sentiment in the markets changes again.