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Gold Hit by End of Year Profit Taking

Commodities / Gold & Silver 2009 Dec 21, 2009 - 11:25 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE WHOLESALE PRICE of gold ticked higher in a tight range against the US Dollar early Monday, rising 1.9% from Friday's 5-week low in what dealers variously called "quiet", "lackluster" and "weak" trade.

Most Asian stock markets ended the day lower, but European share buyers showed a near-1% profit as banks and financial stocks bounced from last week's near-10% drops.

Raw materials rose from aluminum to wool. Government bond prices drifted lower.

"The fact is you don't get any yield on your gold," said Invesco Perpetual fund manager John Greenwood in London's Sunday Times yesterday.

"The underlying presumption is that gold is an insurance against catastrophe and I don't think that we are going to have that catastrophe."

"Global growth is recovering from the Lehman's collapse," agrees Ignis Asset Management's Stuart Thomson, "reversing the [US] currency's decline and causing gold to slide in the second half [of next year].

"In a world of heightened macroeconomic volatility, gold bugs will have to be nimble to prosper in 2010."

Buyers of Invesco's leading UK fund have made a 54% total return profit over the last 5 years. Ignis' UK Focus has gained 37%.

The gold price in Sterling has more than tripled.

"I think concern all around the world about feared currencies is increasing all the time," says Barry Dawes at Martin Place Securities, a mining-stock broker in Sydney, Australia.

"We had a bull market in bonds from 1981 to 2008...a 28-year bull market in bonds. They've got to the bubble stage."

A drop in bond prices would force a "strong move into gold" Dawes believes. "Gold could be much stronger than anyone anticipates."

The Financial Times' Alpha blog today notes that the Swiss National Bank may be intervening in the currency markets for the fourth time since March, selling Francs to depress their value against Euros and Dollars in a bid to revive domestic inflation.

Shortly before 10:00 CET, the Swiss Franc "lurched downwards" from a nine-month high vs. the European single currency.

The gold price in Swiss Francs jumped 0.5% inside 8 minutes, hitting a 3-session high of CHF 1165.88 an ounce.

Both the Euro and British Pound meantime crept higher from Friday's new 10-week lows against the Dollar near $1.4260 and $1.6050 respectively.

That capped the gold price in Sterling below £692 an ounce, more than 15% above New Year 2009.

German, French and Italian investors now ready to buy gold saw the price hold at €777 an ounce, well over 22% higher from the start of this year.

"On a short-term basis, institutional investors could...take profits on their gold positions," says Wolfgang Wrzesniok-Rossbach at German refining group Heraeus, noting that from its 2009 low, gold has risen 53%.

"Regardless of the situation on the interest-rate fronts, these percentage returns appear very inviting to realize some profits, more so with the current financial year coming to an end for a lot of asset management companies.

"[But] what could put pressure on the gold price now could as easily make it move in the other direction at the start of the New Year. Then asset managers will need to put in place their strategies for 2010 and it cannot be ruled out that one or the other who has missed out on the gold boom in 2009 will now get involved."

Leveraged speculators such as hedge funds and bank trading desks continue to hold a very bullish position in gold futures and options, according to latest data from US regulator the CFTC.

Last week's "net long" position held by speculative gold traders (large funds plus private investors) was equivalent to 991 tonnes, the fifth-largest total and only 3% off late-Oct.'s 1021-tonne record.

On the stock exchange, New York's SPDR gold ETF added almost 1% to the stock of bullion backing its trust-fund shares, coming within 8 tonnes of June's record 1134-tonne peak.

In the retail investor gold coin market, meanwhile, "Demand for almost every numismatic product fell [last week] according to the latest US Mint sales report," says Coin News Network.

"In fact, just analyzing the raw numbers show a drop of over 70,000 total items from the prior week. Nearly every gold coin and all US mint proof and uncirculated sets retreated."

One leading US investment newsletter editor who tipped numismatic (rare) gold coins as a good way to extend gold's potential gains five years ago last week advised selling them, admitting that "I might not have gotten it right" because their price had lagged gold bullion dramatically.

Recommended in Dec. 2004, the True Wealth letter's 7-piece set of US Liberty, Saint-Gauden and Indian gold coins has risen some 32% overall, with the least rare coins rising the most.

The price of gold bullion in Dollars has gained well over 160% in the last 5 years.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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