Gold Pausing for Breath - Poised for Another Leap?

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If gold holds at its current levels, and doesn't slip back further, then the chances of another surge in price this month or next have to be strong. $850 is still very much in sight...

It is hardly surprising that the gold price has come back from its spot market peak of around $845 an ounce earlier in the week to settle seemingly in the $830s for a few days. On recent patterns this suggests that this period of consolidation will precede another sharp jump upwards, although some negative factors are coming to the fore.

With the very sharp increase we saw early in the week - the price rose around $40 in two days - it would be extremely surprising if there were not a re-rating backwards and a bit of a pause for breath. The natural indication for traders would be to take some profits, and any adverse news - such as reports that the high prices are impacting Indian jewellery sales - and perhaps what is encouraging for the gold market is that it has only come back around 25 perecent of the recent gain and seems to be steadying at this level.

The dollar is still weak and most commentators - and even the international banking community - reckons it has quite a bit further to fall, although there are increasing indications of alarm from the US's major trading partners over the decline and the potential impact on their exports. But, there are indications now that some Central Banks are reviewing their policies on foreign exchange reserves with a definite move away from the dollar - and it would hardly be surprising if, at some stage, some may look at buying, rather than selling, gold as an appropriate reserve maintenance policy...

If gold holds at its current levels, and doesn't slip back further, then the chances of another surge in price this month or next have to be strong. $850 is still very much in sight, perhaps $100 oil, which many also feel is inevitable, may be the signal which will trigger that particular breakthrough.

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