Stubborn Gold!

Friday, 17 August 2012
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Published in From The CEO

The current price of gold is making some investors impatient.  Very impatient.  The yellow metal seems to be sleeping at the low 1600s without a sign of a higher price in the near future.

Hang in there, my friends.  Gold’s upwardly bound signs are very much alive and well.  They’re merely working hard behind the scenes.  Let’s take a look at some numbers.  The US Census Bureau reports that new housing constructions fell to 746,000 in July, from 754,000 in June.  If that statistic isn’t sufficient proof that the United States consumer is freaked out about the economy, try the weekly Bloomberg consumer index which has just come to our attention.  That index dropped to a minus 44.4 for the week ending August 12 from a minus 41.9 the previous week.

Don’t mistake these numbers for voodoo science.  This particular index has come to be regarded as a reliable measure of the US householder’s take on the economy.  A lower score from one week to the next is a sure reflection of increasing pessimism about what’s in our pockets.

And what should we make of the fact that HSBC Global Research analyst Jim Steel points to the Euro, crude oil and equities as now lending support to gold’s current price level?  We humbly submit that gold is being darned stubborn!
Citibank analyst Tom Fitzgerald is a bit bolder in his outlook.  He told King World News just the other day that gold is simply consolidating at its current level.  According to Fitzgerald, “the longer gold consolidates, the more we believe it sets up the platform, like 2006/2007, for the move higher. Certainly if we start to get a move up through $1,640 to $1,650, it looks to us like the upside move is finally starting, particularly if we can push through that $1,790 level.”

Are you sitting down, my friends?  Fitzgerald further puts forth the idea that “we see no reason why this gold trend cannot perform as well as the last bull market in gold between 1970 and 1980.  He confidently points out that a move of that dynamic “… will take gold to $6,300.”

Yes, you read it right -- $6,300 per ounce! There’s sleeping, there’s consolidating and there’s stubborn.  Now which two out of those three do you feel are spot on for gold? And just so the “sleeping” alternative doesn’t throw you for a loop, consider these statistics for the second quarter of this year.  According to The World Gold Council, Central bank gold purchases during this quarter were 138% than purchases made during the same period the prior year and 63% higher than purchases made in the prior quarter.

But there’s another number reported by the World Gold Council that’s even more telling.  There’s a 124.3 metric ton difference between the WGC estimate and the 33.2 metric tons reported as available in the public domain.  This means that there’s an unidentified buyer or group of buyers that’s quietly making large gold purchases.  Since 33.2 metric tons isn’t exactly chopped liver, it’s safe to say there are those who believe that gold is not only consolidating, but very, very stubborn at the low $1,600s.   So how much gold do you intend to buy right now?

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.