Gold Monthly Review – OCTOBER 2009
Posted October 10, 2009on:
Gold has set a new record high above $1,040/oz and the move up to this level does not look over extended yet.
- Dollar weakness on the back of a rise in interest rates in Australia promoted the rally, but there have been other developments too.
- Fabrication demand is very poor and these higher prices will not help, but there must be considerable pent up demand.
- Investor interest is strong at the fund level and with ETF holders.
- All looks bullish, but be wary in case equities start to correct, in which case precious metals are likely to suffer too – initially.
Gold breaks out of its consolidation pattern and rallies to new record highs.
Trading in early September saw Gold prices break higher out of the consolidation pattern that had contained prices for most of June, July and August. Having broken higher prices accelerated up to the high $990’s/oz, paused and then extended gains to $1,024.25/oz, some $8/oz below the highs seen in March 2008 at $1,032.50/oz. The market then consolidated either side of $1,000/oz, before pushing higher to set new record highs at $1,043.80/oz. In recent weeks, sentiment across the broader markets does seem to have taken a turn for the worse as some important economic data has disappointed the market and that might well trigger a much awaited correction in equities. In the past, Gold prices have suffered during the early part of any broad based risk reduction sell-off and it may well do so again. That said, generally this time around money coming out of equities may well move more quickly into the likes of Gold, especially with the dollar under further pressure following the rise in interest rates in Australia.
Geopolitical risks have risen
Iran’s nuclear ambitions have come back into focus with the revelation of a second nuclear plant. With US patience running thin, the market is fearful of a rise in geopolitical tension. The possibility of tough sanctions may have prompted a pick- up in Gold purchases in the Middle East in case overseas bank assets are frozen.
Having set new record highs Gold prices are in uncharted waters. The next level to overcome is the $1,050/oz level, but forecast are likely to be looking at numbers such as $1,250/oz and $1,500/oz. Considering the break into new high ground, prices do not look too extended above the uptrend line, or indeed the 100 week moving average. At the previous peak at $1,032.50/oz prices were $333 above the average, at the $1006/oz peak they were $195 above and now prices are $149 above the average. That’s an average distance of $225/oz which could see this peak rise up towards $1,120/oz. More to the point the fact a new high has been set suggests the uptrend is intact.
Having just set new highs it is difficult to say anything other than that Gold is looking bullish and not overbought. Fabrication demand is weak and will be even weaker now and that puts more emphasis on investors. However, our big picture outlook remains bullish for Gold. We would not be surprised to see corrections get underway in equities and industrial metals and that is likely to rub off negatively for the precious metals as a risk reduction is likely to hit all markets. Never-the- less, if the reflex move is to sell Gold we feel the secondary reaction will be for more investors to look to Gold to provide a safe haven.