By Bob Hoye
The current tension in financial markets is providing an additional lift to gold prices. Targets based upon the 1980 to 2007 consolidation continue to point to levels above $2,000.

In the short term, the mid-March bottom suggested strength would be seen through late-May or early-June with a pause at the 7/8th speedline.

Previous April-May rallies have concluded with daily RSI(14) readings of 79 to 85 (currently 72) or upside Exhaustion Alerts caused by a solid week of urgency in buying pressure.

The pullback to test the breakout of $1160 on May 4th and 5th alleviated the ‘urgency’ leaving the market free to rally once again.

Upside targets for the next few weeks start at $1236 with the most common advance being 19% ($1290) from mid-March, but surprises could be to the upside so we recommend waiting for overbought readings before lightening up on trading positions.

Courtesy: www.institutionaladvisors.com

By David Lew
Two months after gold posted the historic high price of $1,227 per ounce, bullion investors have been caught in pains of losing money for every ounce of the yellow metal. On Thursday, gold plunged to its biggest one-day loss in 16 months. The yellow metal fell 4.4% in volatile trade, plunging below $1,060 an ounce.

Is all the bubble talk on gold turning true? Is gold price headed down to $1,000 or below that level in February? That is the question bullion investors and gold analysts are asking these days.

The biggest irony and risk in investing in gold these days is the disastrous predictions that bullion analysts with investment banks have been making all these months. While some analysts have predicted that gold price would skyrocket to an astronomical high of $3,000 to $ 5,000 per ounce in few years, several banks have been consistently predicting a great bull run for gold all these days.

I have been wondering whether the hype on gold price is created by bullion analysts with global banks.

Read now some interesting comments that several investment banks have made on gold recently:

According to Ernst and Young, which employs 144,000 people around the world, gold price will continue to rise in the long-term, reaching as much as $2,500 per ounce within the next two years.

”The underlying factors driving up gold prices remain in play and will continue to do so for some time, meaning that the precious metal will remain an attractive proposition. Gold prices will remain high. The world is not out of trouble and inflationary pressures cannot be ignored,” the investment bank said.

Recently, leading British bank Standard Chartered predicted in its latest Commodities Quarterly report that gold prices will continue to advance, with a particularly strong showing in 2010.

“The increased availability of scrap gold as prices surge to new highs will see gold average $1,300/oz in Q4 2010 – once the dollar resumes its weakening trend,” said Standard Chartered Bank.

It said that anyone with gold investment in their folds is well-positioned for a great future.

Similarly, Commerzbank said recently: “A further gold price increase has to be expected, especially as short-term-oriented market participants are likely to be jumping on the bandwagon.”

Likewise, Africa’s Standard Bank said that households in China have become the world’s No.1 buyers in 2009. “There is still very good physical demand for Gold ahead of [early Feb's] Chinese New Year.”

While several banks have been predicting a boom time for gold, there is one global bank that has been consistently sharp on gold price—HSBC.

Some months back, HSBC announced its gold price forecasts for 2009, 2010 and 2011. The world’s largest financial services group predicted that the yellow metal would average $990 per ounce in 2009.

HSBC also revised its estimate for 2010 from $950 per ounce to $1,100 per ounce, while it now pegs gold at an average of $975 per ounce in 2011.

Globally, banks have been the aggressive traders in gold. Banks view gold as safe assets. Banks lend money to people, if they are ready to pledge their gold for loans. Central Banks are trying to build up gold reserves so that nations’ foreign exchange reserves are stable and secure for the future.

But the only trouble is that when banks begin to predict gold prices, things go haywire in bullion market. Banks predict gold prices according to their whims and fancies. So, it would not be too much to say that banks are, in fact, trying to create the bubble phenomenon in gold, by forecasting gold prices without throwing light on basic fundamentals.

Can the bullion analysts and banks stop predicting gold price? Can the physical gold price go up or down according to the precious metal’s inherent asset and holding value?

MUMBAI (Commodity Online): Should investors fear a bubble in gold price? No, there is nothing to worry on gold investment and corrections in the price of gold should not be viewed as bubbles that would burst, says the World Gold Council (WGC).

Saying that gold investment demand across the world remains robust, WGC top officials said that suggestions of a gold price ‘bubble’ do not take account of gold’s market fundamentals.

“The gold price has been building steadily for nine consecutive years, ending 2009 25% higher than on 31 December 2008 at US$1087.50/oz. The PM gold fix in London on Monday 1 February, 2010 was US$1086.50/oz,” said Aram Shishmanian, Chief Executive Officer, World Gold Council.

According to him, the sustained break in gold price above the key $1000/oz level came in early September, with record highs being tested repeatedly over the remainder of 2009. “The current trading range should not be regarded as an overnight spike, but the result of a measured rise, supported by favourable and robust gold fundamentals,” he said.

Marcus Grubb, Managing Director, Investment, World Gold Council on gold demand: “Investor flows, more specifically from western markets, have provided a key means of support during the course of the credit crisis as investors sought to diversify their exposures to other assets and protect their wealth against the current ravages of the global economy as well as future market shocks. These western investor flows appear to have remained resilient even as the global economy has shown signs of recovery.

Furthermore, evidence suggests that even the more tactical elements active in the gold market are being firmly driven by positive sentiment toward gold’s fundamentals. Further price support was provided by a progressive recovery in jewellery demand after a pressured first quarter.

“The diversity in gold demand cited above is expected to continue across multiple sectors and geographies. It is this diversity which has helped insulate the precious metal from shocks impacting other assets. More tangible signs of economic recovery in the second half of 2009, especially in developing economies, also continue to provide support to the gold price”.

Aram Shishmanian said on gold supply: “Robust demand should also be viewed in the context of constrained supply. Significant drivers of the gold price were also apparent on the supply side in 2009. Traditionally, central banks have been suppliers of gold, but this is starting to change. Over the course of 2009, the market saw a structural shift in central bank reserve management as western central banks slowed gold sales and developing nations added to their gold reserves. Other factors contributing on the supply side were sizeable pockets of de-hedging activity, although most major producer hedge books have now been unwound, and a reduction in the supply of recycled gold to market from the extremely high levels seen in the first quarter of 2009″.

Gold investment demand rises by 46%: WGC

2009-08-19

(Commodity Online): Investment demand for gold remained very strong in the second quarter of 2009, rising 46% on year earlier levels as investors continued a flight to quality. Overall demand for gold fell back from recent high levels as weak economic conditions and high gold prices combined to impact demand, according to the Q2’09 Gold Demand Trends report published today by World Gold Council (WGC).

Although gold demand remains very high on a historical basis, total demand in Q2’09 was down 9% on the levels of a year earlier, a 6% decline in $US value terms to $US21.3 billion.

In India, despite domestic economic pressures and sustained near record local gold prices, second quarter gold demand recovered from the exceptionally weak levels witnessed in the previous quarter, rising from 17.7 tonnes in Q1’09 to 109.0 tonnes in Q2’09. However, total demand remained well below year-earlier levels. Total gold off-take was down 38% on Q2’08, with jewellery, the largest component of demand, falling 31%.

Retail investment demand returned to positive levels from the dishoarding seen during the first quarter, but was nevertheless weak in comparison to year-earlier totals. Demand for bars and coins, at 21.0 tonnes, was less than half the 48.1 tonnes recorded in Q2’08.

Aram Shishmanian, CEO, World Gold Council, commented: “Despite the recent near record rupee prices, investor appetite and consumer affinity for gold remains healthy. While the most recent quarter-on quarter improvement was in large part a seasonal improvement, we expect a healthy rebound in activity. A stronger economic outlook than many regions, and the forthcoming festival season suggest that demand for gold will continue to build on recent trends. We expect consumers, investors and the trade to look for opportunities to buy following an exceptional period of profit-taking and de-stocking.

“More widely, this is another excellent quarter for global gold demand as gold’s unique properties and broad demand and supply base continue to sustain a vibrant market and support the price. Although demand failed to match the exceptional levels seen in previous quarters when the economic and financial crisis was at its peak, demand nevertheless remained very robust throughout the quarter. Investment demand, in particular, witnessed a strong quarter and we believe this indicates a growing recognition of gold as an important and independent asset class.

“The global economic downturn has certainly had a major impact on the purchasing power of gold consumers, as have the high local prices and dollar volatility. However, we continue to see pockets of solid demand in many non-western markets on dips in the gold price. We expect consumers, particularly in India, to look for opportunities to buy back the jewellery that has been recycled over recent quarters”.

The figures, compiled independently for WGC by GFMS Limited, show that total global identifiable investment demand for gold, which includes exchange traded funds (ETFs) and bars and coins, remained very strong. Investment demand rose to 222 tonnes, a 46% increase on year-earlier levels, but below the extreme highs experienced during the previous three quarters when the economic and financial crisis was at its peak.

Global retail investment, which includes demand for physical gold in the form of bars and coins, had another healthy quarter. Net retail investment was up 23% relative to the previous quarter and 12% on the levels of Q2’08 as investors, specifically those in western countries, continued to seek out gold for its unique wealth preservation qualities. Flows into gold ETFs returned to a more moderate, but historically robust level of 57 tonnes after an exceptional first quarter that saw net inflows total 465 tonnes.

Inferred investment, which covers the less visible part of gold demand, stood at 195 tonnes in Q2, up from 10 tonnes for the same period last year. This rise reflected a significant increase in gold held by investors, wary of counterparty risk, in allocated gold accounts.

The impact of high local gold prices (near record highs for consumers in some countries), at a time of severe global economic difficulty, led to a widespread decline in consumer demand for gold jewellery, down 22% compared to the same period in 2008

Dollar dictates gold prices
Commodity Online
Gold’s movement this month was mainly driven by the strength/weakness of the dollar and the search for a trend regarding inflation/deflation. The starting of the month saw a steep fall in the prices which almost touched $900 an ounce which is a two month low. But a fall in the US$ Index provided some support to the prices of yellow metal which moves in opposite direction to the greenback
[ Read Full Article]

May 26 (Bloomberg) — Gold may target a record $1,250 an ounce as a continuation head-and-shoulders pattern may be forming within a longer-term trend, Standard Bank Group Ltd. said, citing trading patterns.

A break and close above $1,050.40 “provides warning that an important breakout” has occurred, Darran Grabham, the bank’s technical analyst, wrote in a note yesterday. A head-and- shoulders pattern is formed when a commodity makes three consecutive peaks, with the middle being the highest. It forms during a series of increases over time.

“The positive implications are substantial, with the minimum objective situated at $1,250,” Grabham wrote. “On the downside, gold weakness through $864 turns the outlook bearish, and the weaker trend could then continue towards $802.”

Gold for immediate delivery traded little changed at $957.29 an ounce at 8:09 a.m. Singapore time. The precious metal is down 7.4 percent from its record high of $1,032.70 on March 17, 2008.

In the near term, a negative bias is expected to dominate in the days ahead as the positive trend has faltered in the $960 to $966.70 area, Grabham wrote.

“A decline into the $940 to $935 zone is anticipated, with $935 regarded as an important support point over the next week or so,” he wrote. “We expect gold to enter a period of consolidation below $966.70, before a break higher occurs, setting up a test on $980.” So-called support levels are where buy orders are clustered.

“If $935 gives way — delaying the next move higher — the sell-off could continue to $925, with $915 representing another key near-term support level,” Grabham added. “Weakness through $915 negates the positive outlook, exposing the market to the $895 to $885 area.”

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

Last Updated: May 25, 2009 20:59 EDT