Gold reached an 18 month high at $1,017.50/oz in early European trading this morning. Gold has found its footing in the low $1,000s/oz and looks set to launch an assault on the all time record nominal high of $1,033/oz (on March 17th 2008). 18 months ago tomorrow is when gold surged to its record high (in the aftermath of the Lehman’s bankruptcy) and much consolidation and base building has been done in the last 18 months. Gold now looks very strong both from a technical point of view and a fundamental point of view.
From a technical point of view gold looks very bullish with a series of higher lows and higher highs and with the long term moving averages now again positive. Also the first weekly close above $1,000/oz was a bullish technical development noted by few.
From a fundamental point of view, the developments with regard to central bank becoming net buyers again in Q2 of 2009 and looking likely to be net buyers in all of 2009 is very bullish as they are most important players and likely to be able to overpower the sharp decline in jewellery purchases internationally. Central bank buying when combined with large institutional money will also overcome the very significant selling by the public in recent months with global gold scrap sales reaching a record of 1,218 tonnes last year alone.
While small investors and jewellery owners have been selling, high net worth individuals, hedge funds, institutions and large banks are diversifying into gold in a more substantial way. The elephant in the room and one that is being studiously ignored by some bears and those who have been calling this market wrong is the ‘China factor’. With the Chinese central bank worried about their vast dollar holdings and the Chinese government encouraging their citizens to own gold, Chinese demand alone could propel prices to much higher levels.
This sets the scene for gold to rise above $1,200/oz in the coming weeks and the inflation adjusted high of $2,300/oz remains a likely price target in the next 3 to 5 years.
Gold is currently trading at $1,016/oz. While there may be a pullback in the short term, those expecting a pullback to below the $970/oz level are likely to be disappointed.
Silver also performed very strongly this morning and touched $17.29/oz and is currently trading at $17.20/oz. The next big resistance level lies at $17.70/oz with support at $16.70/oz. Silver continues to outperform Gold and has maintained that trend since late 2008. Silver’s record nominal high of $20.88/oz looks set to be challenged in 2009.
Platinum group metals
Platinum is currently trading at $1,350/oz while Rhodium is trading at $1,650/oz.