Profit taking brings gold price back from the brink

A rapid surge in the gold price taking it to within striking distance of $1200 an ounce was halted this morning by profit taking - but for how long?

LONDON - 

Eastern market buying , following news of yet another Central Bank IMF gold purchase - this time a relatively small amount - 10 tonnes (by Sri Lanka) kept gold surging up to over $1195 an ounce, just short of yet another round figure psychological barrier, before profit taking in Europe came in as markets opened and dropped the price back around $10-15.  With the U.S. market closed for the Thanksgiving holiday, gold is likely to remain thinly traded until Monday at the earliest.  It will be interesting to see the U.S. take on the gold price level when traders get back to their offices.

Since the big Indian purchase of 200 tonnes of IMF gold there has been a considerable amount of bullish news for gold which, accompanied for the most part by an ever declining dollar, has rekindled investor interest in the yellow metal.  This is notable in the revived purchasing of the SPRD Gold Trust gold ETF which is getting back close to its record June levels.  While there had been a strong move towards physical gold purchases, perhaps the news that HSBC, which holds most of the SPDR gold in its New York vaults, was running out of space, and was directing small clients to remove bullion and store it elsewhere, allayed some of the nervousness over whether the ETF gold really exists suggested by some pundits!

This was followed by news of yet another suspension of one-ounce Gold Eagle coin sales by the U.S. Mint due to stock shortage - all signs that the gold price momentum remains intact.

While $1200 an ounce may not be quite such a strong psychological barrier as $1000 was, it is the level which the most optimistic of the more sober gold bulls reckoned the metal might reach this year, although most mainstream analysts thought such a level unlikely.  Shows how much one should rely on forecasts from those we entrust our investment decisions to!  Bank and other mainstream financial analysts tend to take current metal prices and just adjust forecasts up or down by a small margin depending on which way the wind is blowing - and thus play safe, but as predictors of where markets are really going they seldom come up to scratch.

Be this as it may, gold has had quite a run in the past two months and it wouldn't be too surprising if there is a bit of a pause at some stage.  But still the portents look good with seemingly the only thing likely to halt gold's advance being a major recovery in the dollar vis-a-vis other currencies.  With the burgeoning deficit in the U.S., sentiment has very definitely moved towards flight from the dollar rather than recovery with financial institutions, governments and central banks looking to reduce their reliance on the greenback and move into other options - of which gold now seems the most logical path.

Coupled with declining global production - despite the higher prices - and huge difficulties facing the world's traditional producers in replacing declining output from older mining operations, the market looks set for further advance, although there may yet be hiccups along the way. $1220 - $1240 is quoted by some chart followers as the next hurdle to pass, but on recent performance such chart points seem to be able to breached with consummate ease.

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