Barely two years after the Oil price surge, another old time favourite 'cash preservation' instrument, the GOLD, is coming into the limelight and beginning to make frequent presence in the financial headlines. But the news on gold breaking new high isn't really something...new; at all.
At the point of this writing, yet another new high of USD1258.38 is reported; about 3 times the price 5 years ago.
This is what is reported:
Lets take a look at its chart [source:24hgold.com]LONDON (AFP) - – The price of gold surged to an all-time high point above 1,258 dollars an ounce on Friday, on the back of the weaker US currency and downbeat US economic data, traders said.
In afternoon trading on the London Bullion Market, gold hit a record 1,258.38 dollars an ounce.
"This could open the door to further appreciation towards the 1,300-dollar level in the coming weeks," said Rajesh Patel, head trader at financial betting firm Spread Co.
"The dollar has been due a fall, what with its strength versus the euro and sterling lately, and a falling dollar pushes gold higher as it makes it cheaper for investors outside the US to buy gold, increasing demand.
"The drop in jobless claims and the manufacturing index yesterday in the US also add to investors concerns."
I share the same view that gold is poised to attempt the 1,300 mark and it is in my view that its going to be effortless. I am however and in fact a lot more aggressive in the take that there is a very very high possibility of us hearing it hit 1,600 in the next 2-3 months or ?sooner?[i.e August - September]
I can't sense any potential bubble as yet, but a little inkling feeling that the game is just about beginning to repeat the course of oil price surge phenomenon/pattern.
The 1,200 - 1,300 mark [region] appears more like a consolidation level than a overbought level to me. This means that I look at it as the real momentum has just begun. And somewhat a guts feel that we might see it cross the 2,000 mark into somewhere near ?? 2,ooo - 2,1oo [my forecasted bubble] by December before ?? Christmas??
The gold price progression into bubble as I would expect:
$400 - $800 level. Supposedly a genuine price range due to the flow of funds mainly to protect cash value against the economic instability in recent years.
800 -1,200 level. gold price has moved out of its economic value into mild speculative mode
1,200 1,600 level. Beginning to draw on attention of speculators and creating panic hedging as businesses begin to stock up for their production purposes through the future market.
1,600 -2,000 level. Skeptical level. starts to draw on more hedging and the hyper speculative and also beating of the short sellers in their disbelief.
>2,000 [kaboom!] panic short covering pushes it neatly over the psychological mark and with the last few who believe that the next target would be 2,500.
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Question? Signs of bubble:
- When the high gold price begins to hurt the manufacturing industry, particularly, the steel and electronic sector.
- when 'they' start to explain that there is a shortage of gold supply. and when you start hearing all sorts of 'strange' reasons that seem to attempt to support the gold price surge.
- When gold futures are trading at historical high volume due to hedging AND speculative activities.
- hedging comes from companies that need gold as raw material for their production. it may also be from professional hedging activities from commodities traders.
- speculation comes from 3 sources
- the gold traders
- the layman
- the stockists of gold
- An example of what doesn't seem to make sense to me:
- falling USDollar makes it cheaper to buy gold? now? I very much doubt the statement because gold isn't cheap to do your investment or seek protection from falling currency, especially at this price level. What is your risk/return cushion? there are other precious metals to do so.
- Another question. Why is there an increasing demand in gold? I cannot see a real demand in gold, other than for trading as our current global economy is still in a recovery phase. If there is ever a shortage in gold now, it is not because we don't have enough gold on our planet but 'players' are holding on to the stocks [gold] as they anticipate higher prices.
- Another point. Gold is recyclable. BUT, the real gold which are held tightly in the hands of big players are not out in the supply to meet the futures contract and hence I expect the futures market to drive and lead spot price.
- You can expect to hear target as high as USD2000 per ounce once it hit $1,600 mark, and that may not be a joke.
- Yet another point. For gold price to attempt an euphoric level of USD 2,000. 3 things must prevail and co-exist i.e Fear, greed and skepticism.
- Fear: the manufacturers fear that the price will keep shooting up and hence they start hedging on futures heavily. inflation, sovereign debts. Gold stands to 'benefit' from perceived troubles mainly on currencies weakness.
- greed: from people whom already hold large stock of gold and keep holding back causing lack of supply. And of course, the speculators who loves the high risk/ low returns game.
- skepticism; from short-sellers.
- A point about skepticism or short selling. Now, short sellers often get into trouble with an uptrend because in any price movements, the stages of increments are driven by rather differing causes. price surge typically are supported by fundamental at the beginning. At this stage, fundamental rules and support the price. BUT it is important to note that when the market switches mode into speculative, people are not and no longer pricing an element [be it stock or comodities] based on fundamentals. The driver has become somewhat psychological and emotional. That is why a short seller should be careful in observing the 'mood' or 'mode' of the market when contemplating a short because if you are referring to fundamentals while the mass market does not, then it is unlikely that the price will correct because of fundamental reasons.
- Note. When the gold price finally peaks, those involve heavily in trading/speculating gold futures certainly would not want the real delivery of tonnes of gold to their backyard at ?$2,000? per ounce.
- Needless to expound further, I leave you to draw your own conclusions.
- IMPORTANT DISCLAIMER:
- Please do not construe this blog as an offer or solicitation to trade gold. Views and opinions are uniquely bias in perspective of my observation and experience. Therefore all expressed herein are solely for reference and do exercise prudence/caution and due diligence and seek professional advice as needed. Trade at your own risk. I hereto express that I have no vested interest in gold trading activities and I do not trade gold personally.
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