Gold's cover blown?

Once again gold has found its way into the headlines. Last time we were here a contrarian top was essentially called. Are we there again? Seems like it. Rhona O'connell commenting for MineWeb offers as good as commentary as any. Like any analyst or expert they have a good thesis but reality takes little regard for that thesis and generally goes about its business despite what it "should do".

With gold grabbing the headlines in the "lay" press as well as the specialist publications and law-abiding analysts being buttonholed by their mates about whether it's now a "buy", it is perfectly arguable that the market is topping out. While this is unlikely actually to be the case this time, there is clear scope for a correction, as speculative froth needs to be blown off the market. Many market observers expect the spot price to challenge the historical high within a matter of days. The record high fix was $850 on 21st January 1980, although the intraday high was closer to $875.

The reasons behind the moves are obviously well rehearsed, including continued dollar concerns, geopolitical tensions, oil heading towards $100 per barrel, associated inflationary fears and concerns (potentially misplaced, given balance sheet strength) about the banking system, volatile equity markets and underlying financial stability. Perception is all and it is the fears surrounding the banking sector that are exacerbating the problem (the run on Northern Rock in the United Kingdom is a case in point). The sector that may actually have the real problems is the financial insurers, who are likely to incur substantial losses against loan write-downs.

Gold, that other insurance policy, has accordingly gained 28% between the recent intermediate low fix of $653.00 on the morning of the 17th August and the pm fix of $841.10 on 7th November. This increase is in dollar terms rises in a selection of other currencies have been as follows (taking the low pm fix, 21st August, through to the pm fix of 8th November). The gain in yen terms was 26%, while the gain in Australian dollar terms was a mere 10%, as the Australian dollar been benefiting from commodity strength (although the recent hike in Aussie interest rates may also have helped here).

For the complete commentary see: GOLD AND SILVER ANALYSIS