Gold now at $513: is this the break? Alec Hogg Posted: Wed, 07 Dec 2005 08:00
Ever since the gold price started seriously threatening its psychological barrier at $500 an ounce, technical analysts have pointed out that to really motor, the price would have to break the $509,20 peak set in February 1983.
It looked promising for part of yesterday’s session in the Far East when the metal traded briefly above that level, touching $511. But that move fizzled out and the price eased back to a few dollars above $500.
But gold is back in rude health this morning, setting a fresh 23-year high of $513 and showing signs of holding the higher ground.
Might this be the final breakthrough which gold bulls have been waiting for? Bullion’s fan club is certainly in good voice.
This week’s newsletter from New Jersey-based investment advisor and feted gold supporter Peter Grandich, describes $510 as being the bears’ “last line in the sand”.
He argues: “The vast majority of investors and media are either unaware or unwilling to accept the belief that a group(s) has been heavily shorting and/or capping gold for several years.” He reckons market forces are finally besting these manipulators.
Grandich adds: “Look for $510 to be taken out before year’s end, and then a run to $525-$550 into the New Year. I do think we’ll see a healthy correction in the first quarter of 2006, but $600-$650 remains my upside target for gold.”
Judging by this morning’s action, Grandich’s timing may prove to be conservative.
For South Africans, the surge in the gold price brings other benefits. As Absa economist Chris Hart explained on Moneyweb Radio last night, because gold still accounts for a substantial portion of the national export earnings (together with platinum around 25%), higher prices for precious metals translates into a stronger exchange rate.
Although exporters wince when they see the Rand strengthening, there is little question that the national interest is served. The stronger currency helps reduce both interest rates and the price of petrol (over half SA’s oil is imported).
On the other hand, the stronger Rand has been baffling many small investors who’ve been piling into gold shares expecting the higher bullion price would bring them juicy profits. But with the value of SA gold shares dependent on the Rand price of gold, the stronger currency has offset recent gains in US Dollar terms.
Again, there could be good news on that front too. Hart, although expecting the Rand to remain firm, believes gold shares are a good investment. He talks of the bullion price consolidating above $500 and then enjoying “another extension”. And its future strength significantly outpacing future Rand rises.
Says Hart: “Gold is not an inflation player at the moment. It’s actually reflecting the fundamental and deep-seated problems that you are seeing in your two major currencies, and that’s the dollar and the euro. And that’s why gold is starting to run.”
The JSE’s Top 40 Index gained almost 1% yesterday and looks poised for another good session. International share markets were firmer overnight with the small gains posted by the US’s major indices following through to modest rises in Japan and Hong Kong.
South Africa’s Rand eased back a little in early trade this morning, dropping from R6,28 to R6,30 against the US Dollar. It remains firm against both the Pound (at R10,94) and Euro (R7,41). The Brent crude oil price edged 20c higher, trading in London this morning at $56,22 a barrel.
Alec Hogg presents the Moneyweb Power Hour every week night between 6pm and 7pm on Radio 2000.
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