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Gold had a record-setting month in July, with prices scaling new peaks on multiple occasions due to the metal’s seemingly insatiable safe haven appeal.
By Leia Toovey- Exclusive to Gold Investing News
On Friday, the Department of Commerce’s advance reading on GDP showed that the US economy grew at a slower-than-expected pace of 1.3 percent in the second-quarter. Economists had anticipated growth of 1.7 percent.
The weak GDP data gave gold prices extra impetus, however, throughout the month the big story maker was the inability of US lawmakers to come to an agreement on the country’s deficit. The impasse resulted in a sliding greenback, which was positive for gold prices. “Gold is in a ‘can’t lose’ situation with the debt negotiations because regardless of the outcome, the dollar is going to suffer,” said Matthew Zeman, a strategist at Kingsview Financial in Chicago.
The US was not the only region struggling to come up with a solution to its debt. Fears over a European-sovereign-debt crisis added to gold’s rally. During the month, European officials strived to come up with a plan to help debt-laden Greece, and Standard & Poor’s announced Greece will partially default once European officials push through a second bailout plan.
The market was first “impressed” by gold in the second week of the month when prices edged up to $1,550 an ounce, however, this was just the start of the rally, and prices continued their ascent, eventually hitting the record intraday price of $1,637.50 on the 29th. It was not all smooth sailing for gold, however, there were a few corrections, most of them due to profit taking. When gold first passed $1,600.00 some traders cashed in their positions. However, as debt concerns lingered, there was a fundamental shift and the market sentiment turned to support the possibility that prices above $1,600.00 per ounce were sustainable. “Physical demand is generally staying absent at gold prices above $1,610 an ounce,” Edel Tully, a London-based analyst at UBS AG, said in a report. “The fact that we’ve begun to see average — rather than low — purchases at these levels suggests that buyers are starting to adjust to a much higher gold price.” In sum, gold prices were up almost 8 percent in the month. So far this year, the metal has gained 14 percent and is well on its way to post its 11th consecutive annual gain.
Throughout this year, there have been differing opinions as to whether or not gold could continue on its upward trajectory, however, even with a record-shattering month, many analysts and industry participants were willing to voice their bullish projections for the metal’s price. Morgan Stanley increased their price forecast for gold for the end of 2011 by 8 percent up to $1,511, in 2012 by 22 percent up to $1,624, and in 2013 by 24 percent up to $1,550. Newmont Mining Corp.’s (NYSE:NEM) Chief Executive Officer Richard O’Brien said he expected gold to be at $1,750 per ounce next year.
According to internal research, Citigroup (NYSE:C) thinks that the sovereign debt worries in the US and Europe could push the gold price up to US$2,500 an ounce, and possibly even as high as US$5,000 ounce. In a note to clients, analyst Heath Jansen had the following to say about gold’s rally “When investors are hungry for gold, the metal has a habit of rising exponentially which has no parallel amongst metals. While base metals still have to adhere to some form of analysis along the lines of “supply less demand = inventory”, gold has decades of inventory lying in Central Banks and so that consideration doesn’t enter the equation, unless banks wish to sell that inventory.” Jansen added that he does not think that banks will sell off their inventory because, in the past, that has turned out to be a wrong decision. In fact, due to negative experiences in the past, he expects banks will actually be more likely to hold on to their gold.
I, Leia Toovey, hold no direct investment interests in any company mentioned in this article.
