Bullion Within Touching Distance of $1,600 July 15, 2011 – Posted in: Press
by Jack Farchy
Published July 15, 2011
Financial Times
Gold dipped from its record high on Friday as a surge in prices encouraged consumers from Asia to the US to sell their gold for scrap.
Nonetheless, the yellow metal remained within reach of the psychological barrier of $1,600, trading on Friday at $1,588 a troy ounce, down from a nominal record of $1,594.16 touched on Thursday but still up 3 per cent over the course of the week.
Walter de Wet, head of commodities research at Standard Bank in London, said the rapid rise in prices had unlocked a wave of scrap selling.
“With gold below $1,530, physical demand was strong, which supported the gold price, but now support from the physical market has turned into resistance,” he said.
Other traders noted a similar theme.
Tobina Kahn, vice-president of House of Kahn, the Chicago-based jewellery group, said: “A lot of people are coming in here to ask what their jewellery is worth.”
Nonetheless, the selling was balanced by a wave of buying from western investors, who had been unenthusiastic about gold at current record prices.
The surge to record highs came amid a week of political and economic turmoil across much of the developed world, sending investors rushing to bullion as a means of protecting their wealth.
Investors bought 910,000 ounces of gold this week through exchange traded funds backed by physical bullion, according to data compiled by UBS.
The initial trigger for the rally was the escalation of sovereign debt concerns in Europe, with Italy becoming the latest focus.
Soon after, the focus moved across the Atlantic, with Moody’s and Standard & Poor’s warning that the US could lose its triple A credit rating if politicians failed to reach a deal on the country’s debt ceiling.
Finally, Ben Bernanke, Federal Reserve chairman, raised the possibility of a further bout of quantitative easing in comments to Congress, a move that analysts believe would drive more money into precious metals markets.
Traders believe gold could easily surpass $1,600 in the near term, though some believe a correction may be brewing.
“Given our belief that the US will avoid a technical default and that a third round of quantitative easing can be avoided, we would caution against a rapid move in the gold price above $1,650 an ounce in the near term,” said Xiao Fu, analyst at Deutsche Bank.
Although gold prices are at a record in nominal terms, when adjusted for inflation they are below the peak of 1980, which translates to about $2,400 in today’s money.
Silver also rallied hard this week as investors shook off the memories of its 25 per cent collapse in the first week of May. The metal rose 6.1 per cent to $38.84 a troy ounce, having touched a two-month peak of $39.34 on Thursday.