Gold Climbs Through $1260

Mineweb reports that Gold climbs through $1260.

Update: Gold climbs through $1260 -where can the break out take us?
Gold is still showing strength and rising on any bad economic news, and today has risen to a new record above $1260.

Author: Lawrence Williams
Posted: Friday , 18 Jun 2010

FUNCHAL - As we noted here the other day, the gold price has been stair-stepping upwards with successive resistance levels both upwards and downwards advancing at each step - see Gold price pattern emerging - support and resistance both getting higher. Well yesterday disappointing U.S. figures on the labour front and an unexpected decline in consumer prices in the U.S. suggesting no end yet to the recession depressed the stock market, although it recovered late in the day, and industrial and agricultural commodity prices as investors returned to the safe haven appeal of gold, and the price rose again back at one stage to touch $1250, and today the price moved even higher to a new record above the $1260 level.

At the moment the markets are being faced with periodic bad news which brings them down (apart from gold) while ever-optimistic investors seize on anything which is not actually bad to push them up again! But if one analyses the situation there is actually little or no real good news out there which might support the optimists, while the chances are there is still more bad news to come. There is almost certain to be continuing doubt on the European debt situation - the former Soviet Union countries are mostly in serious difficulties and while their economies may not be that significant on the global scale, any problems which are announced are likely to impact on sentiment.

But some of the major European economies remain precarious too - Spain is the current headline grabber in this respect, with its debt rating downgraded and fears it is going to have to call on the IMF for a rescue package. Others, including the UK, may well yet report serious problems which will spook the markets. But for the U.S. investor, the real crunch will come if one, or more, U.S. States threatens default. The politicians hide such matters for as long as possible, but sooner or later something will give and the dominoes may start to fall. With a world which has increasingly been living beyond its means through all sectors of society and government it would appear that more financial turmoil is inevitable.

While some of the talk of a total dollar collapse and U.S. hyperinflation is probably overdone, there is little doubt that the value of the U.S dollar, along with that of many other world currencies is being devalued through Quantitative Easing programmes. Indeed it is only the problems being faced by other currencies
[and naked short selling] which have kept the dollar seemingly strong. The U.S. Fed and its counterparts elsewhere have a difficult task in trying to keep their economies out of depression - whether they are succeeding remains yet to be seen - but the money printing solution they have collectively embraced is definitely laced with long term dangers.

But where does this leave gold? It has recently been bouncing around between about $1215 and $1250 and the breakout above $1260 may be as far as it will go for the moment. That it the price has remained strong during a traditionally weak time of the year for the yellow metal is in itself a positive factor long term for those looking for further increases, but without any really significant bad news breaking it is likely to stay at or around current levels until the northern summer doldrums are behind us.

Looking ahead - September could well see a change. Last year gold moved strongly upwards in the Fall, and any more bad economic data at that time could portend a very sharp rise towards the end of the year. It is maybe in the U.S. Fed's interests - and that of the European Central Bank - to try and mitigate any rise in gold as, in terms of perception by the sophisticated investment sector (i.e. those with major wealth to protect institutionally and individually), a sharp gold price rise will suggest further global economic decline and generate a possible stampede into what is still seen as the safest asset, which in itself would just make a bad situation even worse. But there is only so much the Central Banks can do and at best that is perhaps only to control a continuing rise. To an extent it depends how much a flow of bad economic news can be controlled by the politicians who will be doing their utmost to try and keep economies on an even keel.

On balance it looks therefore, at least for the time being, that the portents for the global economy are, at best uncertain and at worst downright disturbing and while this pattern remains in place gold should remain as good a wealth protector as any, and better than most, and a continuing upwards price pattern is the most likely scenario. This does not prevent stock markets rising as well. Markets generally do OK in an inflationary environment too - although there is yet little sign of inflation in the major economies - deflation remains the bigger worry
[not for long, seeing gold go up and up].

But don't necessarily expect a stratospheric gold price increase - at least not yet - it will take a major economic collapse beyond the Central Bankers' and governments' ability to mitigate it to see this happen [AGREED, but you want to buy gold NOW before the “major economic collapse”, not after]
. One can't rule this out, but if it were to happen - again as we have said before - the whole social and economic structure [of the US, the UK, and Japan] could [will] break down to such an extent that even one's holdings in gold may not be enough to [completely] protect us from the potential of ensuing chaos and anarchy! In the words of Ian McAvity - gold holders be careful what you wish for. [We buy gold not because we wish for collapse, but because we fear it.]

My reaction: Gold is hitting new all highs. I still expect agricultural prices, especially soybeans, to start heading sharply higher towards the end of the month. Let' s wait and see.

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3 Responses to Gold Climbs Through $1260

  1. Gold has provided a 'safety net' for investors that have been hit hard during the stock market meltdown. I forsee it's price continuing to rise in the near term.

    Jonathan Devine
    ETF Securities

  2. Robert says:

    Don't even think of buying gold ETFs. You buy gold in case the economy collapses - if it does, ETFs will be worthless.

  3. Edwardo says:

    The economy is in a state of collapse, but we are in a relatively brief period much like the one Wile E. Coyote found himself in when he went over the cliff. There were a few seconds of unreality as he levitated, but then he looked down and the plummet ensued.

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