Globe-Mail Monday re gold and technical significance of us$1225.
Commodities:
Gold bugs say July and August are often sleepy months for their precious metal, so last week’s market carnage must have been a pleasant surprise.
Now what? The next week or two may provide evidence over whether gold can get back to its high of $1,264 (U.S.) an ounce, achieved in June, and perhaps even go further.
In some part, the argument relies on technical analysis: The $1,220- to $1,225-an-ounce price range is seen by some as a threshold: If gold can reach and maintain that price, it could then have the momentum to head toward $1,300. (Gold closed just under $1,215 on Friday.)
Authors of the Bullion Weekly newsletter from bulliondesk.com said they believe prices must rise above $1,218, “at which point they are likely to follow the path back to the high ground around $1,265.”
Precious-metals analysts at Goldman Sachs stoked the fires last week with macroeconomic arguments, saying the firm’s economics team now believes the Fed will have to keep interest rates low through 2011 and will also return to boosting the money supply. Both should help gold prices, the Goldman analysts said, with $1,300 a possible six-month target.
Last week’s economic pessimism was the major driver of gold’s return, with a commensurate drop in the equities markets. Disappointing economic data, coupled with a series of profit warnings, most notably Cisco’s, did the most damage.
Next week’s releases, heavy on housing and credit data, and the continuation of the earnings season, mean there are more possible excuses to flock to safety.
In addition, Barclays Capital strategist Suki Cooper told Reuters, physical demand for gold has increased as well. Combining that with the macroeconomic environment, the Barclays team expects gold to average $1,260 during the final quarter.
What is odd about gold’s recent performance is that gains have occurred at the same time as a strengthening U.S. dollar; typically, the two have an inverse relationship. The departure from the norm seems to be caused by the euro’s weakness, driven by continuing concerns about debt levels among euro zone members. |
