After another strong week last week (both gold and silver were up some 3%) despite falling stock markets, gold continues its outperformance of other asset classes due to safe haven demand. It has surged again overnight in Asia and is now at 7 month highs and looks very likely to target its record high of $1,000/oz in the coming days.
Resistance at $950/oz was sailed through very easily overnight and the next level of resistance is $980/oz prior to a likely challenge of $1,000/oz in the coming days.
With the global economy slowing very sharply, international demand remains very strong as seen in gold coin, bar, certificate and exchange traded fund demand. ETF holdings of the world’s largest gold-backed exchange-traded reached a record 985.86 tonnes as of February 13, up 15.29 tonnes or 1.6% from the previous day. The trust’s gold holdings are up a very significant 205 tonnes, or 26% in just the first six weeks of the year (see chart below).
Besides increasing retail, pension and institutional demand, many central banks are increasingly favourable to gold. Russia’s central bank has increased gold’s share in reserves, and plans to continue this trend in 2009, first deputy chairman told Reuters in an interview on Monday. The ECB Eurosystem’s reserves of gold and gold receivables increased EUR 1 million to EUR218.320 billion in the week ended Jan. 30.
Gold’s strength in recent days is particularly impressive as it comes in conjunction with a stronger dollar. However, this “strength” is more a function of a weakening in most fiat currencies internationally versus the dollar.
Gold has risen above £675/oz and €760/oz reached new record highs in many other currencies such as the South African rand and the Canadian dollar.
This bodes well for gold prices in the coming weeks as when the dollar begins to weaken again in the coming weeks, which seems very likely, then gold should rise even more sharply and target levels above $1,200/oz in the coming months.
Importantly, the commonly quote COMEX gold price is actually lagging considering the extent of international demand as seen in the charts above.
And this marked rise in demand comes at a time when world gold production is actually falling.
While investment demand remains very strong and is increasing there are growing fears about the declining supply of gold – the world’s mine gold supply has been falling in recent years and it fell to 2,385 tonnes last year, down 3.6 per cent from 2007 (despite the rise in prices in recent years).
This is a recipe for markedly higher prices in the coming months and the inflation adjusted high of some $2,400/oz looks more and more likely in the next few years.