Gold US$1,230.50 up $7.50
It was a good week for gold bugs —they know a good price when they see one.
Gold prices plunged early in the week to test a major long-term price support floor. And, just like in June 2013 and January 2014, investors snapped up the yellow metal at a furious pace as the drop to the $1,182 per ounce level was perceived as a good level to buy.
Nearby Comex gold futures are shaping up to close out the week with a bullish outside week, which is positive technical chart formation and suggests a low has formed. See Figure 1 below.
Investment demand will continue to be a long-term driver and support for the gold market in the months and years ahead. Longer-term investors bide their time and wait for good buying opportunities to enter the market to buy, and to build their gold holdings —and that is what we saw happen the week ending October 10. For now, the $1,180 zone has been defined as a good buying spot.
Overall investment demand has been off in 2014 as U.S. investors are finally beginning to shake off the repercussions of the 2008-2009 global financial crisis. But, despite moderate improvement in the U.S. economy, there remain significant concerns about Europe's growth prospects and Japan's. China's overall growth picture is slowing as well. Economists continue to monitor the overheated Chinese real estate market, which is already beginning to deflate, and could at some point trigger a more serious domino effect within the banking sector there.
Jeffrey Christian, managing partner at the CPM Group, noted "we are not in the group of people looking for sharply higher gold prices." He estimated that by the end of 2015 his firm estimates a $1,380 quarterly average price for gold. But, he added that "the single most important factor is investment demand."
"Our thinking is that investors may buy a couple million ounces less in 2014. But, next year, we think investors will be buying a little more gold. Investors will continue to build gold holdings because of long-term economic concerns," Christian said.
There remain major structural imbalances —especially in relation to the debt and deficit situations in the major industrialized nations, which could argue for diversification into gold as a safe haven.
According to a World Gold Council report entitled: China's gold market: progress and prospects, "Investors in China believe that US economic policies will eventually undermine the dollar and drive up the international price of gold."
Bullion investment in China was prohibited by the government from 1954-2004, according to the World Gold Council report. But, now China —which is the world's second largest economy —is the world's largest market for gold bars, the World Gold Council says.
While economic concerns may be moderately slightly in the U.S., the global economy still faces many challenges. Gold investors around the globe know that bullion is a hard asset which can help diversify their wealth holdings and act as a safe-haven and vehicle to preserve wealth. This week's buying action in gold shows investors are eager to build up and add to their gold portfolio at bargain level prices. |
