Gold prices heading toward cyclical peak around $1,550 - CPM's Christian
Despite the litany of problems the world currently faces, growth is continuing in most parts of the world and some investors believe that the yellow metal is looking a little top heavy.
Posted: Wednesday , 23 Mar 2011
Gold prices could get as high as $1,550 in the next few months but, this would represent a cyclical peak for the yellow metal.
Speaking to Mineweb.com's Gold Weekly podcast, CPM MD, Jeffrey Christian said, that despite all the political turmoil in global markets many investors are beginning to look out for a cyclical high to the gold price.
Christian is quick to point out that while the world faces a litany of problems, including the unrest in the Middle East and the potential for oil supply disruption, sovereign debt problems in Europe and the devastation of Japan, gold prices are already very high.
"Gold prices were never as high as they are now prior to around August or September 2010...also, even in the face of all these economic crises, real economic growth is continuing in most parts of the world - including the United States and Europe."
As a result of this, he says, "you have any number of investors who will say that maybe gold prices are getting close to a cyclical peak or maybe even have passed it - I don't think it has passed it, it's probably coming in the next few weeks. A lot of investors are saying gold is looking top heavy and let's be honest - the world isn't collapsing, it's facing incredible problems, but it's been facing incredible problems for the last decade and we continue to muddle through and manage with these issues."
Christian also points to developments in the futures market as evidence of what is likely to happen to gold prices.
"Right now in the April contract, which is the active contracts in the Comex you have 23 million ounces of open interest. Now that's down from 32 million ounces at the beginning of March, so you've seen about a third of the open interest go away."
He does add, however, that, "over the course of the rest of March and into the first week of April, those people who were short 23 million ounces of gold in the Comex April contracts have to either buy those contracts back, roll them forward or find physical metal to deliver into them. Most of them will be rolled forward, but all three of those actions have the effect of driving the price up on a temporary basis - that's another reason why we think that we may be approaching a cyclical peak in the next few weeks, is because the move into the April contracts often is the occasion for cyclical peak in the gold market."
According to Christian, another factor underpinning his belief that we are heading toward a peak is the seasonality of gold prices, which tend to be strongest from December through to April, after which they tend to weaken going into the Northern Hemisphere summer.
Asked where the trough might be, once the peak has been reached, Christian says, CPM is expecting prices to come down to around $1,250, $1,300 initially, after which they could fall as low as $1,150 over the course of the middle of 2011.