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History Promises: Gold Should Rise Through November

November 12, 2010 at 16:39 by Vladimir Vyun

Gold continues to rally and constantly shows new records. It looked until recently like nothing can stop it. But recent decline caused concern and question: will the rally persist?

Most economists, unsurprisingly, remain in bulls’ camp. Reasons they give for continuation of the rally are varied, but most commonly stated reason is uncertainty in the global economy. European debt crisis shook Europe, then attention turned to the weak US economy, now Europe’s troubles again has come to light. Amid such economic turbulence gold is one of the most obvious and reliable safe asset. Many analysts talk about returning of gold to its old role of global currency. Robert Zoellick, the World Bank President, actually offered to return to a gold standard. He proposed a system, which would “consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values”. He wasn’t supported by global policymakers, though, as gold supplies are too unpredictable to make the global economy dependent on them. Jean-Claude Trichet, the European Central Bank President, said that he heard such suggestions since 1980-s, while German officials agreed that paper currencies have its own problems, but considered the system “based on a commodity whose availability is dictated by natural conditions” unpractical in the modern economy.

There is much less people who expect gold to decline, but they exist. They consider the notion of gold as currency in twenty-first century as nonsense, the outlook that is shared, it seems, by global policy makers with their cold reception of a proposal of a gold standard. They also envision current record high prices as unsustainable and predict them to decline somewhere in the future. The problem with such prediction is that nobody dares to tell exactly when and how low the precious metal may fall. This fact makes such predictions almost worthless: it’s not hard to predict that gold will decline, at least slightly, some day, but without exact numbers such predictions aren’t interesting.

There’s an explanation of a decline in October and a possible hint to further gold moves: seasonality. That’s it: gold’s recent behavior hasn’t contradicted the historical pattern, but rather confirmed it. We could expect a reverse of the bullish trend in case prices would continue to decline in November, but gold has resumed its rally. Now we can expect it to continue its rise as season of holidays with New Year, Christmas, etc. is coming and demand for precious metals increases.

How much will gold rally? It’s anybody’s guess but for now it struggles at $1420 level. It should overcome it soon (though Group of Twenty meeting may affect it) and may rise to $1450 by the end of this month. By the end of the year prices may reach $1500 level. For those traders, who consider gold too expensive (and it is expensive!), silver is a good alternative. It’s noticeably cheaper, sustained its rally better and currently rallies alongside gold very strongly.

If you have any questions or comments about the future trading for the Gold, use the form below to reply.

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