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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold New Record High $1,093, $1,200/oz By Year End?

Commodities / Gold & Silver 2009 Nov 04, 2009 - 05:27 AM GMT

By: GoldCore

Commodities Best Financial Markets Analysis ArticleGold rose to new record highs yesterday and again this morning above $1,093/oz in what appears to have been continuing reaction to the news that Indian central bank had bought 200 tonnes of gold from the IMF . Gold has also surged in euro and pound terms.


The new record high price and the price at these levels is not extreme given that the India central bank buying shows that there is a huge appetite for gold around these price levels as the average price paid for the 200 tonnes (bought by the Reserve Bank of India) was around $1,045/oz. Indian central bank officials have suggested that they wish to buy another 200 tonnes from the IMF. Thus, gold prices over $1,000/oz are sustainable in the long term and there would appear to be a long term floor under the gold market around the mid $1,000s/oz. Our start of year forecast of gold prices over $1,200/oz in 2009 looks quite possible, especially with two of gold's seasonally stronger months upon us (November and December).


Gold Less than Half Its Inflation Adjusted High in 1980

The large Indian gold purchase shows that the strong anti-gold sentiment of recent years is abating. The news could potentially spark a bidding war for the rest of the IMF's gold (and indeed the relatively small amount of refined, investment grade London Good Delivery Bars - 400 oz gold bars - in the world) among the various 'emerging market' central banks including China, Brazil, Russia, Korea and other countries with large dollar foreign exchange exposure. The Reserve Bank of India had reserves of 557.7 tonnes in March 2009 (http://en.wikipedia.org/wiki/Gold_reserves) and now have some 757.7 tonnes which remains a paltry 6.2% of their foreign exchange reserves. This is tiny compared to the European average of 60% of gold to official reserves and the US' even larger 77% (Federal Reserve's has retained 8,100 tonnes of gold - the world's largest holder).

Gold can hold these levels and while it is slightly overbought in the short term, it remains undervalued from a long term inflation and historical basis. Most importantly and often overlooked is the fact that gold remains less than half its inflation adjusted high of 30 years ago at $2,300/oz (see chart above) and is to an extent just playing catch up on a long term basis. What is really behind the recent rally is very robust diversification demand from central banks, hedge funds and pension funds and the bullish outlook of the respected and significant players at the LBMA Conference (in Scotland over the last two days) will do little to diminish gold's continuing shine.

Gold has experienced yet another strong opening this morning and is currently trading at $1,092/oz, $40 higher than its opening yesterday. In EUR and GBP terms gold is trading at €739/oz and £661/oz respectively.

Silver
Silver is currently trading at $17.29/oz, €11.72/oz and £10.46. Silver remains significantly undervalued historically and versus gold and looks set to play catch with gold in the coming weeks. Our research article on silver provides reasons for our very bullish outlook for gold's often forgotten little brother - silver:http://www.goldcore.com/research/silver-set-soar-it-did-1970

Platinum Group Metals
Platinum is trading at $1,360/oz and palladium is currently trading at $328/oz. Rhodium has moved up nicely and looks set to move higher in the coming months - it is currently trading at $1,950/oz.

The Bullion Services Team

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