What Now for Gold as It Holds Up Well in Weak Price Season?


". . .it seems the Eastern appetite for gold could be resurgent."

Even many gold bulls had been predicting the usual northern hemisphere summer doldrums having a negative effect on the gold price, with falls down to $850 or below seen as likely. But, the yellow metal has been holding up remarkably well, with any downwards movements seeming to falter in the lower $900s and an effective trading range of between $920 and $950 an ounce seeming to have been established. Today gold moved back up through the $950 level for the first time in nearly a month, leading some to believe that these stronger levels are here to stay.

The immediate gold price stimulus has come from a sharply weaker dollar and a corresponding rise in the price of oil—though to tie the gold price increase to the oil price rise, as some commentators seem to do, is perhaps misleading as currently both commodity prices primarily reflect the dollar fall.

But other factors seem supportive of the gold price at the present time. Those who look at gold's fundamentals as being the key indicators seem to have been puzzled by the metal's resilience this year after supplies were boosted by a substantial amount of scrap gold coming onto the market, at the same time as demand by the Indian jewelry manufacturing market had seen a huge decline as the jewelry fabricators had been unwilling to pay the high prices set by the market. This had only exacerbated the big fall in the western luxury markets—the other major consumer of gold.

If the jewelry sector believes the higher price levels are here to stay, it will eventually return to being a significant purchaser. And reports coming out of India suggest that this is beginning to happen despite a rupee price spike. Add to that ever-growing Chinese demand and it seems the Eastern appetite for gold could be resurgent.

Should gold demand and price continue to hold up through the weak northern summer months, the price could be set for a strong surge in the fall, which could take it through the $1,000 level once and for all.

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