Strong investment demand overpowered the diminishing jewelry demand and sent gold prices to another record high yesterday.
Gold prices saw $1,279.50 per ounce as global economic worries sent the investors to the safe haven. Silver reached a new high as well, approaching $21 an ounce. The falling US dollar is helping the metal prices as well.
Gold is heading toward the $1,300 to $1,350 price target, most analysts expect. Some, however, are skeptical about the strength of the rally.
Will the rally persist?
Technically, it is too early to say, but the spot prices were supported at just below $1,270, in the range of the previous high. An old high works as a strong support when prices crossover with good volume and hold ground.
Fundamentally, the global expansionary monetary policies work as a strong support for prices. The precious metal is becoming the currency and a reserve asset.
The Federal Reserve decision to reduce interest rates to stimulate the economy reduces costs of owning bullion and gold stocks. Interest rates will likely stay low considering the slow economic growth.
said Robin Bhar, analyst at Credit Agricole.
Pointing to a report of dwindling physical demand, the Austrian Mint reported a drop in sales in the twelve-month period that ended in August, says Jon Nadler senior analyst at Kitco in his daily commentary, cautioning novice investors “not everything you read on bullion bully bullish gold websites is true”. He recommends 10% gold allocation in a portfolio.
George Soros, billionaire financier, gave his version of warning as well. Talking to Reuters, he cautioned traders of the gold securities and said that gold is "the ultimate bubble … it's certainly not safe and it's not going to last forever."
Soros' advice has a lot of weight but gold’s rally might be far from finished, as fundamentals remain strong. The Fed decision next week will be crucial for gold prices. Announcement of quantitative easing, a.k.a. printing money, may ignite another rally.
Disclosure: No positions