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Gold: Ready To Break Out.
Experts are calling more upside in the gold price, short term, as the metal seems to have consolidated at the $550/oz level and appears ready to set some new 25-year records.
Jeffrey Christian, head of the CPM Group, a New York based precious metals consultancy, is one of those expecting a near term jump in the yellow metal.
“We are going into the April Comex gold and Nymex platinum delivery period and you have a high open interest in both of those contracts right now which suggests to us that we could see $580 or even higher between now and early April,” said Christian at the offices of South African based institutional brokerage, Noah Financial on Thursday morning.
Futures contracts, traded on the New York Commodities Exchange (Comex) are an agreement to buy or sell a commodity at a specific price and date. The delivery date is the day the metal is transferred from buyer to seller or that the contract is paid out.
Christian says it is usually in the five-month period between December and April, that commodities tend to peak at new highs.
“One of the reasons why prices tend to peak in that period is because there is a very strong seasonality to precious metals and copper prices and that seasonality grows on fabrication demand trends and investment demand trends.”
Christian describes the upcoming peak as seasonal and not cyclical, implying even higher prices in the future.
However, do not get over-excited just yet. The price could fall before it gets there, according to Christian.
“We think the price is going to fall off and move into a consolidation phase second and third quarters (2006) and then possibly rise to new peaks in December and April next year,” says Christian.
And while he talks of a price between $580/oz and $600/oz coming up, he says the eventual cyclical peak is not as clear and will be driven by investor demand rather than jewellery demand.
“Where those peaks are and how graciously the markets get to them will depend on currency market developments, stock markets, interest rates, international politics and domestic politics,” he says.
It is for gold’s safe-haven appeal that others are seeing future upside in the price. Uncertainty over what Iran is up to in its uranium enrichment programme is just one of the recent headline events leaving investors uneasy.
“These issues are not going to go away quickly and hence we expect to see gold prices average $555 per ounce in 2006, rising to $575 average in 2007,” said Helen Henton, Head of Commodity Research at Standard Chartered Bank in a note on Monday.
Christian agrees that geopolitical events are still pushing the gold price. “The factors that have been stimulating higher gold prices and have been stimulating higher investment demand for gold, primarily have not changed,” he says, “They may have gotten better and we may have seen that investors have moderated their bullishness, but we have not really seen a sea change in the economic and political environment.”
GFMS, the London based precious metals consultancy also released its quarterly newsletter, looking at the outlook for gold investment.
In the note, Philip Klapwijk, GFMS’s chairman, says that the current bull rally is driven by a variety of motives, which can all be summarised under the traditional headings of “greed” or “fear.” He adds that we are still some way off of the peak.
“There is increasing media coverage of gold’s performance, with anecdotal evidence that this is beginning to encourage ordinary investors to look at gold,” says Klapwijk, “Of course once the retail bandwagon really starts to roll this would indicate that the rally is entering its final phase, although that point is still some way off.”
Christian described a typical global scene that would signal the top of the gold price’s bull run: “If peace broke out in the world and a lot of the problems in financial markets were resolved, corporate earnings were very strong, stock markets start rising higher and interest rates stabilise then we can say, maybe we have seen it (the peak).”
