The Hindu Business Line : Gold could make further headway

Gold towards last weekend saw hectic activity. It had everyone sit up and notice as it touched $700 an ounce. At the PM fix in London, it closed at $701.57 an ounce.

Why did gold suddenly turn hot last week or was it an expected event? Analysts aren’t surprised over the development.

According to Mr Julian D.W. Phillips, gold and silver will reflect the decay of the dollar and its value, taking more “cheapening dollars” to buy gold or silver. The US data during the weekend and the dollar’s fall to a 15-year low aren’t encouraging factors for the global economy. It means investors search for safe haven. What more than gold do you need for the safe haven?

More bounce

Not surprisingly then, gold has shown more bounce and verve than any other commodity, barring wheat, since the wide selloff witnessed in almost all the markets in the wake of the sub-prime mortgage woes.

“Last week’s confidence crunch was the beginning of gold and silver’s rise, and it will go on as long as doubts are thrown at the monetary system and the global balance of payments,” says Mr Phillips.

According to Mr Franklin of Money Changers, gold has to go past $710 for a genuine breakout and rally.

Panic selloff

Scotia Mocatta, in its outlook for September, says the panic selloff could have refuelled the market as it not only reduced the size of net long fund position but also gave the market some strong upward momentum.

According to this arm of Nova Scotia bank, demand for gold remains strong and the fall in the dollar couple with booming economies in Asia have sparked the jewellery market. With festival and wedding season around the corner in India, gold is seen in only one direction – up.

Mr Roland Watson of Golden Eagle feels investments in gold is the primary mover in the market since oil prices are on fire.

Shock absorber

Analysts are of the view that the initial sales in gold during the sub-prime woes was only for return for improved liquidity. Currently, the gold market is witnessing this.

With portfolio managers revising and reviewing their strategies, gold is the only one which looks like withstanding any shock or surprise. And, no wonder, they have begun to outperform other commodities with investments going into gold in emerging and developing markets, particularly Asia.

Amidst this comes the hope of Newmont Mining, a top gold exploration firm, that gold prices could rise to around $750 per ounce, on the back of jewellery consumption.

“There is very strong demand right now so we are setting ourselves up for an attack on the $750 per ounce level in early fall this year,” the Newmont Vice-Chairman, Mr Pierre Lassonde, told Reuters last week..

Demand to grow

Mr Lassonde is said to be confident that demand for gold generated by the jewellery market is set to grow further, consequently pushing up the price of gold.

China and India have been identified as the greatest centres of increase in gold jewellery consumption, with reports from the World Gold Council this year confirming the Asian giants as key markets, alongside West Asia and Turkey.

Analysts say gold and silver, to some extent, are reflecting the dropping confidence in the monetary system, especially gold.

Investors having their fingers in the pie of gold or silver could feel secure as they see the bullion seeing them through tougher periods.

They are of the view that the dollar is set to lose more value, sooner or later and there are definitive indicators towards this.

Gold is set to continue its climb higher this week and it could be a matter of time before it challenges $730.