CNBC Comment: Why it could now be time to buy gold
GOLD kicked off 2013 trading just below $1,700 per troy ounce, only to see central banks and investors push its market value down to around $1,180 in late June. Since then, it has steadily risen in value, putting on its best performance in months last week, when it broke through the psychologically important $1,350 level.
John Meyer, analyst at SP Angel, thinks prices look poised to break out higher this week, with levels of $1,500 in sight. Meyer points out that it became unfashionable for funds to hold gold in the US in the second quarter, and this led to a collapse in the price during the last two weeks of June. Investors were initially fearful of the potential impact of a sudden end to the US Fed’s bond-buying programme, but these fears have now subsided. According to Meyer, it seems like a lot of the speculative players are out. He sees a further rise in the price through $1,400, as buyers await stronger demand heading into the autumn.
Physical purchases have jumped, especially in China and India, where many investors saw the pullback as an opportunity to buy. The general trend has been for the market to digest substantial exchange-traded fund sales, and Meyer expects rising gold purchases by manufacturers ahead of Christmas. Demand from India and China will also remain in focus. The Indian government banned gold imports due to issues regarding balance of payments and the level of general demand. But as Meyer says, you tend to make something more popular when you ban it.
There could also be price support coming from industrial action in South Africa. Gold production is being cut because of this, and there is a freeze on new investment in the gold sector in the country, even though a lot of the current mining shafts are unsustainable and not up to scratch.
Geoff Wilkinson, head of technical strategy at Whitman Howard, agrees that gold will continue higher from current levels, and price action shows a clear separation between sharp up-moves and slower corrections. Wilkinson says we’ll keep making new short-term highs – $1,345 is a very important support level – and that we should be able to build on towards $1,400 to $1,450. After this level is reached, investors will have important decisions to make. While tactically the gold trade looks encouraging; strategically the big calls will be made once the precious metal hits $1,400. If, however, we push through this elevated level (which was the top of the market from mid May to mid June), the scene is set for a much bigger rally in gold.
Louisa Bojesen is anchor of CNBC’s European Closing Bell. Follow Louisa on Twitter @louisabojesen