Gold Touches $1200 In Dramatic Surge

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Includes: GLD, GTU, IAU, OUNZ, PHYS, QGLDX, SGOL
by: Lawrence Williams

Despite the Chinese market being closed for Chinese New Year, the gold price has opened this week very strongly. After a small dip overnight down to the mid $1,160s, it rapidly recovered any lost ground from Friday's close, and then surged upwards through what many considered to be a key resistance level at $1,180. At the time of writing, it had pushed up to $1,196, and now commentators and analysts see it as heading to the $1,200 psychological level - a level it hasn't see since June last year. Indeed, as I write, the gold price has surged from the high $1,170s to touching $1,200 in under an hour, before falling back to around $1,190. Is this sign of the breakout the ardent gold bulls have been waiting for?

Sentiment towards gold appears to have made a complete sea change in the first five weeks of this year, not only in the world's two biggest markets for physical gold, India and China, but now also in Europe and the USA, where the price tends to be set. To an extent, this is due to continuing serious nervousness in global equities markets. For the past two to three years, analysts have reckoned that gold had fallen out of favour as an asset class, as far better returns were being made in the equities markets; but last year, equities were largely flat, and ever since the U.S. Fed. commenced its so-called interest rates normalisation programme, albeit with a tiny 25 basis points increase in mid-December, after a brief hiatus period, equities have tanked and gold has been on the up.

Today, European equities markets opened lower, as did their U.S. counterparts, with the Dow falling back below 16,000 - it peaked last April at comfortably over 18,000. The markets can move strongly in either direction, even in a day, but the overall trend since the beginning of the year has been sharply downwards. The market pessimists have long been talking about a forthcoming equities crash, and now people are beginning to see this as a real possibility, and they are nervous.

Gold has thus been becoming a safe haven again. We have seen purchases into the big gold ETFs heading towards erasing last year's big liquidations in a matter of weeks. Last week, the yellow metal moved back up through its 200-day moving average, which reinforced other "Buy" signals, while panicky covering by some of the big holders of short gold positions will be adding to the surge.

Before gold investors get too euphoric, though, it should be remembered that the metal started last year really well too, with a similar surge, which took the then price up to around $1,296 by January 22nd - after opening the year at around the $1,170-1,180 mark (a rise of around 10% in only three weeks). This year, gold has risen so far by around 11% over five weeks - so, a similar kind of increase. Has the speed of the price increase been overdone? Time will tell - and gold can be a somewhat fickle investment class - although long term it has tended to hold its value well.

Silver has not been immune to gold's rise. It was fixed this morning at the somewhat discredited London benchmark pricing system at $14.94 (although, to be fair, this was around the spot price at the time), but at the time of writing - only a couple of hours later - it had surged to $15.40, before falling back a few cents like its yellow sibling.