A week removed from the blockbuster announcement that the
Reserve Bank of India had purchased 200 tonnes of gold from the
IMF, precious metals continued their ascent, gold making fresh
all-time highs last week at just over $1,120 before ending the week
with a gain of about $20 at $1,118 an ounce. Silver posted a modest
gain, up from $17.39 an ounce to $17.42 an ounce.
The view that central banks will continue to be net buyers of gold
rather than net sellers (as has been the case for about the last
twenty years) has
many calling the Indian purchase at $1,045 an ounce the
"new floor" for the gold price.
That would certainly seem to make sense at least for the near-term
as market analysts speculate on which central bank might be next to
buy IMF gold while hearing the U.S. Federal Reserve and
international G20 representatives stress that it is far too early
to begin removing the massive liquidity and stimulus that have
seemingly rescued the world from another Great Depression.
The recent rise in the gold price has obviously been aided by a
weakening U.S. dollar but, with unemployment set to go even higher
over the next six months, there is little reason to think that the
Fed will do anything to bolster the currency during that time.
Rumors swirled last week that the Reserve Bank of India may have
sold U.S. Treasuries to fund its recent gold purchase and there is
growing unease amongst countries that maintain dollar "pegs" for
their currencies as they have to print more of their own currency
to buy dollars and maintain that peg.
As for silver, it is interesting to note that inventory at the
iShares Silver Trust ETF
(NYSEArca:SLV) continues to rise, surging in recent days to a new
all-time high with the addition of 200+ tonnes as shown below.
Meanwhile, inventory at the world's most popular gold ETF,
SPDR Gold Shares ETF
(NYSEArca:GLD), remains below levels seen at mid-year.
It should be an interesting period ahead for both gold and silver
since, going back to very early in the decade, there has been a
repeating two-year pattern for the metals that can been seen in the
gold chart below.
Since 2002, prices have peaked at new highs early in the
even numbered years - in 2004 at $425, in 2006 at $725, and, most
recently, in 2008 at $1,035
In many ways, recent events are shaping up to be a repeat of this
pattern which, based on the previous peak-to-peak gains would imply
a gold price somewhere north of $1,300 early next year.
Of course, any sharp rebound in the dollar (which some are still
loudly predicting) would reverse this trend very quickly.
There were some truly odd goings on in Vietnam over the last week
or so that, for those who pay attention to this sort of thing,
really adds to the case for a much higher gold price, perhaps
sooner rather than later. After seeing a surge in buying in gold
bullion in recent years, particularly after inflation soared to
nearly 20 percent in early-2008 and investors looked to preserve
their wealth, the government banned imports of the metal.
Gold continues to be traded in the country, however, due to the
limited supply, it has developed its own local market that, last
week, saw bullion trading at about $60 higher than in global
markets. After markets went "crazy" (see this
in Vietnam.net), the government announced that it would resume
imports of the metal and premiums are now reverting quickly to more
I just got off the phone with my mother and for the second straight
week she asked me about the price of gold. To my knowledge, she
doesn't own any (though I've done my best to convince her to do so
over the years), but, I can't help but wonder if this is a sign of
a near-term top or a sign that there are many more interested
buyers out there now that gold has surpassed the $1,000 mark with
little indication of turning back. She even knew about the purchase
by the Reserve Bank of India.]
Subscriber RN just notified me that, by his calculation, the
referenced story about gold in Vietnam had the price at almost
US$1,300 an ounce.]
Today in Commodities: The Year Is 11/12ths Over