Gold seems to get discussed mainly when it’s going up – and after the recent flurry of excitement, as gold reached an 11-month high of $1,005.40 on Feb. 20 – all has gone quiet, or at least, reasonably quiet.
As the FT notes on Thursday, gold appears to be continuing a concerted correction, dropping 2 per cent on Wednesday to $907 a troy ounce, moving between a low of $906.30 and a high of $932.30.
Since its Feb. 20 11-month high, the metal has sunk 8.6 per cent over the past seven sessions, mainly because investor inflows into gold exchange traded funds have stalled, the report addsA surge in investment demand saw total ETF holdings jump by 318 tonnes in the first two months of 2008. However, the abrupt halt in ETF inflows which began last week has led to uncertainty about the market’s outlook as other demand drivers, such as jewellery consumption and industrial usage, remain weak.
Sharp falls in global stock markets this week have contributed to the downward pressure on bullion prices as hedge funds have been forced to close long gold positions to pay for higher equity margin calls.
But another thing the gold debate has done of late is divide some of the key pundits – as seen last week in the sharply differing views expressed at CLSA’s mega investor conference in Tokyo.
On one hand, Marc “Dr Doom” Faber, one of the biggest gold bulls in recent years, was surprisingly cautious, telling the conference that gold was currently expensive relative to other commodities. What’s more, he warned, the bearish sentiment that has driven investors from equities to the precious metal is likely to reverse soon, reported Bloomberg. This from the man who had consistently recommended investors buy gold since the start of its eight-year rally that culminated in the Feb. 20 peak.
“I’m a little bit careful about the outlook for gold for the rest of the year,” he said, predicting that a “countertrend rally could occur soon where stocks would suddenly rise quite substantially”.
Meanwhile, CLSA’s own Christopher Wood, known for his prescience in predicting the subprime mortgage crisis, confidently predicted at the conference that the global paper currency system would deteriorate and the gold price would more than treble to hit $3,500 by 2010 (“it’s the only form of money or credit not contaminated by the credit system” – and the fact it’s still money can bee seen in the fact that central banks still own a lot of it, he said).
Either way, the latest declines in the gold price merit further analysis, according to CMC Markets’ Ashraf Laidi. In a Thursday note he says that each of the last two gold-price declines (Nov. and Jan.) were limited to 10 per cent declines before the uptrend resumed. More important, perhaps, the latest price falls are more a sign of quick profit-taking than a change of trend, he notes:
Also since November, gold never fell below its 50-day moving average. Finally, the latest retreat remains within the upward channel, suggesting support remains holding at 890. Only a breach below 888-887, will cast serious doubt on the current bull run. if there’s one singular reason gold is unlikely to repeat the October selloff is that today central banks are either at or on their way to quantitative easing (Fed, BoE, BoJ & BoC), followed closely by the SNB.
Related links:
Gold continues its correction towards $900 – FT
Faber says financial industry to contract “much more” - Bloomberg
What’s coming next, from the man who saw it coming – FT Alphaville