Why Gold Will Stay Over $1000 for Quite Some Time
Gold’s recent surge has some investors wondering if gold might be the next bubble. After having already quadrupled in price since 2003, some worry that gold may soon take a breather. But there are many fundamental and techincal reasons as to why $900 gold might not be back for some time to come.
Gold’s Technicals
The technicals on gold are as strong, if not stronger, than the fundamentals. Taking a look at the gold ETF US Gold Shares (GLD) we find that gold moved through the $1000 per ounce level with force, creating a gap in the chart, suggesting that there will be even stronger support/resistance at this level. Take a look at the chart below:
First Gold Fundamental: Inflation
Prices seem stagnant for now, helped by increasing wholesale supplies of goods and services due to the recession. However, as demand for products picks up, so will the price. So far, inventories have been pushed to record lows, suggesting that manufacturing will again have to pick up the pace at an even greater speed to keep inventories in line with demand. Inflation of the money supply, however, is not nearly as silent as the Federal Reserve has doubled the monetary base to $1.7 trillion, leaving the door open for the M3 money supply to grow as large as $17 trillion.
Second Fundamental: Concerned Investors
Are we going up, down, left or right? Investors don’t know, and when they don’t know, they buy safety. Recognizing the fact that gold has existed for millenia as an excellent store of value, investors are piling in in droves. The US Gold Shares (GLD) ETF has a whopping $30 billion in gold, on the list of the world’s top holders of gold, the ETF would rank 4th among NATIONS.
Where do you go from here?
Metals alone are speculative enough, but when they’re at the top of the trading range they’re a whole new breed of risk. From here each move up is going to be a new record and a subsequent support/resistance line, at least temporarily. Its hard to say for how much longer we’ll rally, but with the fundamentals and technicals firmly in place I can say beyond a reasonable doubt that $900 per ounce is history.
USD tends to be one of the main drivers for gold as well, as dollar depreciates, gold appreciates ->
According to a survey in the U.S., the August market scale of ETF products (exchange traded funds), where there are famous individual investors, has approximately doubled from one year ago to $545 billion. This is becoming a case where the new approximately $218 billion capital from the beginning of the year has flowed out. The remarkable capital outflow in the large scale ETF, which is connected to the stock price index, is indeed a contrasting movement.
Gold still feels too volatile for my admittedly conservative investing personality.
I 100% agree with you here!
“…but with the fundamentals and technicals firmly in place I can say beyond a reasonable doubt that $900 per ounce is history.”
I believe Gold will not go below $1000 for a very long time. Some analyst say Gold will reach $2000 or $4000. Not sure if it will ever reach that price but one thing is certain. Gold will continue to go up in a long run.
Michael
My sister owns an environmental company and part of what they do is go into mines that have completed their gold recovery by traditional means and they have a process they use on the heaps.. obviously they are doing very well.