UPDATE: Gold holds above$1500, silver still moving towards $50
A gold price breakthrough above $1500 in Hong Kong has been further supported so far in Europe, while silver continues to rise even faster than its big brother.
Posted: Wednesday , 20 Apr 2011
The gold price did push through $1500 Wednesday morning in early European and late Asian trading, but at this psychological ‘barrier' a fair amount of computer-generated profit taking has already started to come in, although perhaps less than anticipated, and the plus $1500 mark has been maintained - or at least it has in the US dollar. Continuing dollar weakness has seen gold fall back in both the Euro and the Pound sterlingl. (Silver has been an even bigger beneficiary, at least in dollars, and breached $46 0n Thursday - surely still heading for $50.)
But, despite perhaps not quite such a strong performance in other currencies it is nonetheless a major dollar barrier which has been broken and the likelihood would appear to be that in the next few days and weeks, as the European economic malaise continues to feature in the news, the U.S. economic recovery disappoints, doubts about China's short term growth prospects and the ongoing fighting and tensions in Africa and the Middle East, the gold price will at some stage probably consolidate these latest gains and move on to yet new highs as any profit-taking dissipates and buying pressure continues. Indeed if a significant advance above this level comes about $1500 could even become the new ‘floor' for the gold price. The next major resistance level is seen as $1520-$1525 providing the $1500 level is maintained through Easter.
Barclays Capital noted some support for this viewpoint in a research report earlier in the week that gold had been affected by significant selling pressure at the start of the year on the back of a run of positive macro data. Since then, the report commented, the year's low prices have been propelled higher by a raft of factors supporting investor demand (mostly those noted above) which have outweighed some recent rate hikes to drive prices to fresh highs.
But overall, as we have mentioned before, the rising gold price is also an indication of the debasement of the U.S. currency in particular through the excess printing of ‘fiat' money in an attempt to stave off a major global economic depression. European nations are similarly guilty of printing excessive amounts of unbacked currency. In retrospect whether this will be seen by history as a positive move or not obviously remains to be seen. It has as many detractors as supporters among mainstream economists.
With negative interest rates actually supportive of holding gold, which of course does not generate interest - a fact which has been considered a significant reason for not buying gold by the metal's detractors in the past - we are likely set for further rises, although May to August has often proved a period of price weakness or consolidation prior to a take-off in late Summer, early Fall.
Other precious metals have been dragged up along with gold, although one needs to be a little more cautious here perhaps because if one of the reasons for gold's rise is continuing doubts about the economy then those precious metals with a significant industrial usage - notably platinum and palladium - and to an extent silver - thus have perhaps to be more vulnerable.
Silver, though may actually be in a different bracket. It still has momentum, and its past monetary role somehow gives it a gold-like credibility as a safe haven metal and its relatively low price in relation to gold means it is particularly attractive to the smaller investor. However should sentiment towards it change it too could be vulnerable and there are plenty of analysts out there - including some usually strong silver bulls - who are nervous that it may have moved up too far too fast, although they remain positive longer term. But meantime it is steadily moving towards $50 - a level which only six months ago would have seemed incredible!