The Price of Gold is Setting up for Another Move to the Upside

By David Levenstein    Nov 2 2009 12:27PM

Even though the gold price has pulled back from its recent highs and is see-sawing between $1020 and $1060, I believe that the price of the yellow metal is poised to make a move to upside and hit the $1100 level shortly.

During the last week while there were several events causing some downward pressure on precious metals, they were extremely resilient and gold has continued to hold well above $1000. It is important to realize that the gold price has been pushing higher because there is a worldwide awakening that it is not merely dependent on jewellery demand or higher inflation, but it is also a way to protect wealth in the face of a declining US dollar. And, as world monetary standards undergo some very subtle changes gold is the best way to protect the value of one’s assets in this scenario.

The week began with a stronger US dollar, but both the dollar and the yen were sold off after the release of a better than expected GDP report. Q3 GDP in US showed stronger than expected growth at 3.5% annualized rate versus consensus of 3.0%. It's also the first growth figure in more than a year, boosted by stimulus drive gains in consumer spending and home building. Also, the weekly report released from US showed initial jobless claims had dropped slightly to 530K.

Although the stronger than expected Q3 GDP triggered some optimism in the markets on Thursday, the rally was short lived. And as the value of the US dollar gyrated up and down, so did the price of oil and gold. Even though the dollar index has bounced back from its’ recent low of 75.50, it looks as if it is going to hit resistance and the downward trend will resume.

On Wednesday, the Russian Finance Minister, Alexei Kudrin, said that Russia is considering selling gold on world markets to cash in on high prices. Kudrin's remarks follow a report last week that the Gokhran, the Russian agency dealing with precious metals was planning to sell up to 50 metric tons, or 1.6 million ounces, of gold in London by the end of the year. However, the finance minister gave no details to journalists. "We will continue to study this issue and the decision may come in the next few days," Kudrin was quoted by the ITAR-TASS news agency as saying.

Recently legendary investor Paul Tudor Jones was quoted as saying, “precious metals exposure has been increasing and is currently the largest commodity exposure.  As a result we have included, for this quarter, a separate discussion on gold as an appendix.  I have never been a gold bug.  It is just an asset that, like everything else in life, has its time and place.  And now is that time.”

In February/March this year, the South African Rand price of gold was R10,000 per ounce, and despite the recent run up from US$940 to US$1070, due to the strength of the Rand, the price of gold actually dropped to around R7500 per ounce, a drop of some 25% when the underlying commodity jumped upwards 14%. If you ask me, this offers investors with Rands an exceptional buying opportunity for physical gold. While the South African gold shares also seem to have good value, the recent announcement by Eskom, to increase the price of electricity, may have a dampening effect on these shares.

Technicals

The breakout on the upside of the ascending triangle is now very clear, projecting a short-term target of around $1100. While it is possible for gold to consolidate at $1000 - $1025 level, the bigger picture for the yellow metal is upwards.

As the Dollar index managed to rebound and reached as high as 76.57 before turning sideways, it is likely to run into some resistance. During this coming week we are going to see more volatility in the value of the US dollar, the price of oil and gold as a string of key reports including FOMC, BoE, ECB as well as Non-farm payroll are released to the market.

David Levenstein

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About the author: David Levenstein is a leading expert on investing in precious metals .He brings over 29 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He  He is also a regular commentator on www.kitco.com and www.mineweb.com  David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

For more information go to: www.lakeshoretrading.co.z a

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.