Gold out of the box as price rise accelerates

The gold price rise accelerated yet again yesterday and at this rate even the forecast of $950 gold by the year end could be an underestimate.

LONDON - 

A whole batch of positive news for gold sent the yellow metal soaring again yesterday and overnight with $850 in sight possibly today and well over $900 by the year end unless something external happens to halt the rise.

Key yet again in the rise of the metal has been the dollar decline - which correspondent Alf Field described as being in a death spiral in his recent article published on Mineweb last week. (See Gold market move reaches point of recognition) Field also made the point that the recent gold price runup, which started in mid August, has at last really made the market realise that the metal price is in a major bull phase which should last at least through the end of the year.

Writing here a couple of days earlier, I noted - perhaps slightly tongue in cheek at the time - that if the current rate of gold price increase continues we could well see $950 gold by the year end (At the current rate of increase gold will be at $950 by year-end). On the latest gold price movement patterns this could well prove to be an underestimate.

One of the key triggers in the gold price move could be a report by Bloomberg's newswire service today that China is considering moving some of its huge $1.43 trillion of foreign-exchange reserves into stronger currencies, and even the rumour of this occurring will likely put the US dollar into a further period of freefall, with the gold price benefiting accordingly in its role as an inverse dollar valuer.

The Bloomberg report was based on a statement by Cheng Siwei, vice chairman of China's National People's Congress in a speech at a conference in Beijing.

So where are we going now. Talk of $1,000 gold this year, or even next, was seen as the extreme end of the prediction business only a few months ago, but now it looks as though it could really happen. So-called expert analysts, with big salaries supposedly justified by their skills in predicting market movements, are being confounded and the gold bugs will be chortling with glee at the analysts' discomfort.

But there have to be some words of caution over the unravelling gold price scenario. The dollar downward spiral raises all kinds of warning flags over the state of the US economy and the economies of its major trading partners. It is only a matter of time before some of these take concerted action to try and slow or reverse the dollar decline as their exports to the US become priced out of the market. Even temporary reversals in the dollar fall will likely see a sharp downward impact in the gold price with perhaps profit taking on a big scale, so there could yet be setbacks in the gold price rising pattern.

But, with the US Fed seen as likely to shave another quarter point off interest rates, the overall dollar trend will remain downwards - and the gold trend upwards. Whether it can maintain the current rate of increase seems to be the only real point in doubt. That remains to be seen. Today's movement though suggests that gold really is out of the box with big price rises ahead.

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Related Links ARTILCES:  Gold out of the box as price rise accelerates  Supply/demand dynamics may trigger quantum upward change in the gold price  Gold powers through $800 - hang on for a bumpy upwards ride  Gold market move reaches point of recognition  At the current rate of increase gold will be at $950 by year-end  The force is with gold: upwards momentum continues  OTHER PAGES:  MINING FINANCE / INVESTMENT EUROPE AND MIDDLE EAST

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