The force is with gold: upwards momentum continues

After a brief setback at the beginning of the week, gold appears to have resumed its upwards price path and looks to be heading for $800 this year should the momentum continue.

LONDON - 

The phrase Onwards and Upwards has provided a motto, or aim, for many organisations and clubs around the world, and it is now the mantra for the gold sector with prices surging back again to the high $770s this week.

Writing here last weekend I warned that there might be a setback in this trend - see Gold - A pause for thought - and this did in fact occur, sooner than I anticipated (it happened on Monday) and the resulting correction was more shortlived than I anticipated with bullion resuming its upwards path within about three days, and this morning it reached yet more 28 year highs. Indeed, as the price progresses new 28 year highs will become commonplace up until the all time high of $850 is in sight.

The way the gold price is progressing, it looks almost inevitable that the $850 marker will be breached sooner rather than later though. The big question is how soon will this occur - and what then?

There actually seems little in the way of gold climbing surely and steadily through $850, short of some massive concerted effort by the international financial community to prevent this on the grounds that gold strength emphasises dollar weakness and would thus further destabilise the greenback. It looks now though that such a move may lack motive. There seems to be general recognition that the dollar has to fall further to relieve the huge US deficit and the mitigation of such a fall will likely come from Central Bank currency manipulation rather than gold price manipulation (Central Bankers are loath to rate gold as currency!), with the declining dollar already starting to impact on manufactured goods sales from the other industrialised nations.

The balancing factors then in gold price increases will likely be periodic bouts of unease from the jewellery fabrication sector (the largest industrial consumer) which may depress demand from time to time, and profit taking from big investment interests which may not be investors for the long term, but market opportunists moving in and out on periods of weakness and strength. With less Central Bank interference, gold will become a much more volatile market. One could thus expect sharp upward movements followed by equally sharp corrections. Perhaps not the place for those of a nervous disposition.

So where is this taking us in the short term? $800 this year is far from unlikely I would imagine as the momentum seems to be in place to carry the price there in the next couple of months. Next year, who knows? Maybe even, dare I say it, $1,000. At the moment the force is with gold, who knows where it will take us.

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