As soon as the rumors that Greece may get another multi-billion loan reached the global markets the gold price decline slowed down. After that those who invest in precious metals focused their attention on the USA’s business activity and new jobs. Right after the official reports the trends reversed.
Everyone starts considering investment in gold as soon as some major events take place and can influence the exchange rate of EUR, USD, JPY or the price of crude oil and natural gas. What is this? Is it the echo of the golden standard times, when the US government guaranteed a certain amount of gold for each dollar or the desire to introduce a new standard of the global reserve currency?
Both variants are utopia. The USA would never be able to guarantee a troy ounce of gold for 35 dollars, as it was 50 years ago, while it would be impossible to exchange the existing global currency reserves for gold: the precious metal is not enough even for all the central banks, not to mention all the international financial regulators and private investors.
What is the basis of the gold hysteria? How considerable is the speculative component of gold price formation?
The recent situation in the market of gold
Gold keep growing in price despite temporary retracements:
· Last year gold gained in value over 30% which is an all-time record of annual growth
· However in Jan 2011 the price declined by 6%.
· Nevertheless by the end of the 1st quarter the price of gold exceeded the level seen in Q4 2010 mainly at the expense of March’s strong rally. That was a new record. Gold never grew in price for 10 quarters in a row.
· April confirmed the uptrend – gold prices set a couple of new records. For the first time the price of gold exceeded $15000/oz.
· In May the price declined 2%. However, if to compare with the beginning of the year gold has gained in value 8%. June is expected to be another interesting month for the market of gold. Just consider the Greek debt problem…
Is gold a “safe heaven asset’ for investors?
During the hard times of the past an army of investors would switch to precious metals (especially gold). Gold is deliberately overpriced because (as opposed to mineral resources) its price doesn’t depend on the real volume of its production:
· In 2010 gold gained in value 30% while the global production of gold was expanded by only 3%.
· This year the production of gold has already been increased by 0.4% as opposed to the same period of 2010. However the prices keep growing unevenly.
· The price sometimes depends on the demand from jewelers. However, over the last 10 years jewelers has been buying gold in autumn. That is why the current growth cannot be explained like that.
Who else (apart from investors) needs gold?
No investor, not even George Soros, can compete with a certain country if it decides to replenish its gold-and-currency reserves with gold, not paper money. In March2011 the Bank of Mexico spent $4B on gold. In April it bought 190K ounces of gold.
China has a more considerable impact on the global market of precious metals:
Firstly, it is the world’s biggest holder of the US T-bonds (over $1.1 trillion)
Secondly, China wants to replace them with something more valuable and real. That is why the People’s Bank of China buys considerable amounts of gold. Both the political elite and the common people in China strive to invest their capital and savings in gold – the only asset that is value around the world.
Gold market: near-term perspectives
According to the experts of MigBank (a Swiss-based Forex broker), despite the tactical retracement, gold will keep rallying in the near future. Moreover, the price well may exceed the psychological level of $2000/oz in 2011, they say. However, the speculative component so much resembles the one seen in the market of mortgage bonds (which provoked the global crisis of 2008-2009) that the experts won’t be surprised if the price of gold will then decline below $1000/oz.
Why did George Soros - a brilliant investor – get rid of the precious metals in his investment portfolio in April 2011? Mr. Soros still keeps it a secret. At that time nobody could answer the question but the experts of assumed that he knew something that would be made public several months later. At least May didn’t clarify the situation.
The experts of the Department of Masterforex-V trading system , , note that after breaking the sloping channel (under the AO support) gold completed the bullish wave 1307,8-1577 inside another “Hound of the Baskervilles” pattern of trend continuation.
The retracement reached 38.2%. The rally will continue if the price break above the all-time high $1577/oz. Otherwise, a bearish FZR will prompt a retracement pattern.
Market Leader and conduct a survey. To take part in it, please, visit the Academy’s forum and answer the following question:
Will gold keep rallying in the near future?
· Yes, it will, and not only in the near future.
· Yes, it will rally until the situation with EUR and USD clarifies.
· No, it won’t. The price of gold will collapse until the end of 2011.
