During the last week gold make another historic high, touching US$1153 on Wednesday. Once again, what was interesting was that the upward momentum continued despite the fact that there was no real news in the market.
Over the two weeks the price of gold has moved upwards in a series of higher highs and higher lows which I pointed out in my previous newsletter. While I thought it may find some resistance at the US$1125 level, the price breached this level without much difficulty. The next level of resistance seems to be around the US$1150 level, but if the current momentum continues, after a short period of consolidation, this level could be broken and gold could easily hit US$1200. The price of crude bounced between US$80 and US$77 and the EUR/USD see-sawed between 1.500 and 1.4800.
According to an article from Bloomberg Nov. 19, the U.K.’s Royal Mint, more than quadrupled production of gold coins in the third quarter. Output rose to 32,735.8 ounces from 7,500.2 ounces a year before, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production in the first nine months more than tripled to 100,391.3 ounces, the data show.
Sales of American Eagle gold coins by the U.S. Mint more than doubled in the first nine months to 954,000 ounces. And, the president of the Austrian Mint Muenze Oesterreich, Kurt Meyer mentioned that sales of pure gold coins increased by more than 23 percent when compared to last year’s total sales.
In a statement made by the World Gold Council, demand for gold has climbed 10 percent in the third quarter to 800.3 metric tons from the previous three months after investors bought the metal as a currency hedge and as jewelry purchases picked up.
Another bit of interesting news out last week was the story about the legendary hedge fund manager, John Paulson who is launching a new gold fund, which will include $250 million of his own personal investment.
With the continuing weakness in the US dollar, low interest rates around the world, increasing investor demand and a growing concern about the value of these fiat currencies, it is not surprising that the price of gold is performing so well. A fiat currency is a currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. Most of the world's paper money is fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value.
Perhaps one the most frequent questions I’ve been asked is, “Am I too late to participate in this current bull market.” What I find funny is this is the same question I was asked when gold ran up from $250 to $500, and then again when it moved to $700. I recall the so called pundits warning investors that gold is nothing more than a barbaric relic and useless as an investment as it doesn’t pay any interest. And, at $700 I was again asked the same questions to which my reply was the same. “Who cares about the interest when your annual capital appreciation is close to 20 percent? And, gold still has a long way to go.” Then believe it or not, I had the same questions when gold was at $900 and then at $1000.
If you are a long-term investor and looking at a time horizon of more than 3 years, then it is still not too late to participate in this market. In fact it is essential that you diversify some of your assests into precious metals. However if you are a trader who wants to take advantage of short-term price action, while I still maintain the next target is going to be $1200 and then $1300, expect some pull-backs along the way.
In the short-term we may see some consolidation during the next few sessions. The range can be seen between $1125/$1130 and $1150. However, if gold breaks the $1150 level, I think it could test $1180 and then $1200. Also, since the medium charts show that golds rise from July has been gradual, like a staircase, and not a parabolic move to the moon, I don’t see any bubble in this market.
