Analysts are talking gold to US$1500 by mid 2010. I'm always cautious when it comes to bubbles but gold seems to have some quality fundamentals behind it. Talk of China boosting their gold reserves to meet domestic demand etc all point to continuing upside.
China to Increase Its Gold Reserves 8 comments by: Erik Bethel December 01, 2009
Yesterday, China's Economic Information Daily published remarks by a senior Chinese official indicating that Dubai's debt crisis could be a good opportunity for China to purchase gold and oil assets. Ji Xiaonan (Chairman of the Supervisory Committee overseeing large state-owned enterprises) was quoted as saying that the Dubai debt crisis "could give China an opportunity to put some of its foreign exchange reserves into gold or oil."
China is relatively well insulated from the Dubai crisis, as there are no reports of Chinese banks with debt exposure to Dubai. And while there are a few Chinese real estate and construction firms with limited exposure to projects in the Emirates, nothing seems to be grave. Yet Dubai's issues portend the perception of a looming dollar crisis in the West.
What used to be less than US$ 2 trillion in Fx reserves (above) is now US$2.27 trillion. Much of this is parked in U.S. treasuries. Over the past year, Chinese officials have been pressing to move more of the country’s reserves into hard assets and commodities such as gold and oil.
Yesterday, we picked up the China Youth Daily newspaper in which Ji Xiaonan claimed that "China should increase the amount of gold it holds in reserves to reduce potential losses from a depreciating dollar. We recommend China increase its gold reserves to 6,000 metric tons within three-to-five years and possibly to 10,000 tons in eight to 10 years."
For those readers that are unfamiliar with the gold market, it bears mentioning that China is the world’s largest gold producer. And according to the China Gold Association, the country may soon break records in supply and demand for gold. In 2007, China overtook South Africa to become the world’s largest producer. And this past July, the World Gold Council said China could surpass India as the world's largest consumer as well.
NEW YORK (Dow Jones)--Gold futures eased Tuesday from all-time highs hit overnight, but the metal still managed to settle above $1,200 an ounce.
Despite the slightly strengthening U.S. dollar, investors continued to pile into gold on sheer momentum after a month of nearly continuous record highs. They have been buying gold along with other commodities, equities and higher-yielding currencies as they seek to diversify out of the U.S. dollar. Investors are also flocking to gold because they are concerned about potential inflation in months to come.
Most actively traded gold for February delivery rose $12.80 to settle at $1,213 an ounce - its second consecutive close above $1,200 - after hitting $1,218.40 in electronic activity overnight. Thinly traded nearby December futures gained $12.90 to settle at $1,212, its first settlement above the $1,200 mark, after reaching $1,217.30. Overnight, spot gold hit $1,217.10.
Front-month gold contracts have gained around 37% on the year.
The metal continued to rise despite potentially bearish news Tuesday that the world's largest gold miner had finished buying back hedges early.
Barrick Gold Corp. (ABX) announced Tuesday it had eliminated its gold hedges - at an average price of $1,070 an ounce - well ahead of its previously announced September deadline. Although the company said it accelerated the elimination of the contracts because of its positive view on gold prices, the move removes a large buyer from the market place.
"This gold market's taken on a life of its own," said Michael Gross, broker and futures analyst with OptionSellers.com. "You have so many investors pouring into it right now."
On an inflation-adjusted basis, however, gold is far from its peak level of 1980, which was the equivalent of around $2,300. Some say this may be a target price for the metal eventually, but others say the number isn't that important.
Although the dollar was stronger Wednesday, Charles Nedoss, senior market strategist with Olympus Futures, said the buck was merely consolidating at overall lower levels.
Shortly after gold settled, the ICE Futures U.S. dollar index was up 0.208 point at 74.573 points. However, the euro remained above the key $1.50 level. That threw some support gold's way.
Although slightly lower, U.S. stocks were generally holding ground, which kept the more risk tolerant investors in gold, Nedoss said. On the flip side, there are some who fear the overall rally in equities won't last, so they are positioning themselves in gold as a safe haven, he said.
Further, Wednesday's gold rally came in light volume, which can exacerbate moves.
"The market is very thin," said Jim Steel, vice president and metals analyst with HSBC. "The inertia in the market is for higher (prices)."
Settlements (ranges include open-outcry and electronic trading): London PM Gold Fix: $1,212.50; previous PM $1,192.50 Spot gold at 1:53 p.m. ET: $1,213.50, up $17.15; Range: $1,195.70-$1,217.10 Feb gold $1,213.00, up $12.80; Range $1,196.50-$1,218.40
TAM Price at posting:
5.2¢ Sentiment: Hold Disclosure: Held
