Gold Price Hiatus Slows Overall Rate of Increase

Source:

Markets are a little nervous at the moment. What has changed in the gold sector has been the rise in the gold ETF with now over 700 tonnes held in such funds. This puts a speculative metal-holding overhang into play which could bring some physical gold back on the market if investors get nervous.

...as was perhaps inevitable in retrospect, a serious hiatus set in and the price has drifted back to current levels where it appears to have been finding reasonable support above $770.

What has happened to cause the price setback? Profit taking certainly. Probably the view that the dollar decline, in our view the principal cause of the runup in the gold price, may be getting out of hand and that Central Bankers will be attempting to slow the greenback's fall as they see their own countries' exports coming under competitive pressure from dollar zone countries. Financial pressures in the investment sector which may be forcing institutions and funds to offload good investments with bad to help preserve liquidity. And perhaps a general feeling among the less-excitable sector of the investment fraternity that gold may have risen too far too fast...

The fundamentals supporting the gold price are still in place and many, if not most, serious commentators, rather than the out and out gold bugs who expect even more, do see good potential for the gold price to rise further quite sharply over the next year, but the current hiatus may well continue in the short term as the metal price consolidates at or around current levels.

Markets are a little nervous at the moment. What has changed in the gold sector has been the rise in the gold ETF with now over 700 tonnes held in such funds. This puts a speculative metal-holding overhang into play which could bring some physical gold back on the market if investors get nervous. So far signs of this happening have been pretty muted, but it is another factor which needs to be taken into consideration.

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