Demand
for gold is one thing to look at but the other essential part of the equation
with metals is supply - mines are expensive and time consuming to build. When
it comes to the precious metals there is also monetary demand as some Central
banks look to increase their gold reserves as a hedge against currency
weakness. The Gold producers have been closing forward contract sales of gold
over the last few years and this has accelerated during 2007 as giant losses
mounted. The biggest operators in the industry are closing these hedge books
with loans, early physical supply of gold and out of revenue.
It’s
impossible not to conclude that central banks, commercial banks and wealthy
individuals have, are, or will attempt to manipulate gold prices -it is in
their interests. For central banks, it has been done in attempts to wean
investors off the idea that gold is money and onto the concept that
government-issued currencies are the only real money.
Chinese
buying of gold in a big way can also be a form of manipulation. We will never
be given accurate statistics on Chinese gold buying unless it suits them for us
to know. What’s clear is that they have managed to acquire between 2,000 and
2,800 tonnes of gold in 2013, while the price of gold has been dropping.
In the
recent times, impelled by the sentiments from the announcement of the US
Federal Reserve to scale back its controversial monthly bond buying program,
commodities across the globe are trading mixed. The Federal Reserve Chairman
Ben Bernanke in his last FOMC meeting yesterday said that the US apex bank will
reduce the pace of its asset purchases to $75 billion from $85 billion a month,
starting from January 2014. Spot gold extended previous day’s southward action
and dropped to the lowest point in six months, breaking the psychological level
of $1200 a troy ounce.
Is spite
of the sharp drop in the gold prices I feel that the bulls are eventually going
to win over bears amidst weakening dollar and increased hedge demand from currency
traders and Central Banks. The best time to buy gold is when the market hates
it. As per my analysis the global market is having a very firm support a $1168
a troy ounce and has good potential to shoot above 1250 in the coming 3-5
weeks.
