Gold Price Going Back Above $900

Date 26/09/2008

The Right Side

Erin-And-Isabel

Well, it was a good story, and it is the story that counts! Remember this summer’s one that the world’s major central banks were going to unload their tonnes of gold into the market to help boost the dollar? It wasn’t true! Top global precious metals consultancy GFMS has figures to prove it. So, if the London-based group is right, here is another reason for being a gold bull.

What’s more, and GFMS’s track record makes its view credible, it says major central bank sales are slowing. It expects sales to practically collapse this year – to be the lowest since 1995, and be low next year, too.

The numbers just published by GFMS are sales of central banks party to the Central Bank Gold Agreement. This is an agreement to stop the world’s top bankers destroying the value of their major assets.

Their gold sales actually fell in the first half of 2008.They’ve nowhere near used up their rations. The fall was 167 tonnes, it estimates, a drop of 26% on first half 2007. In July and August their sales totalled a mere 14 tonnes.

Even those central banks who were not party to the agreement preferred to hold their profits on the gold in their vaults. GFMS expects their actions over the coming markets to be broadly market neutral. So, all-in-all, good grounds for confidence.

Other stuff in GFMS’s latest report shows us why we should be cautious about market reports. Not about the stories, but about the language.

“Now, when we said ‘impressive surge’…”

This spring’s soaring gold price came on the back as what GFMS described as an “impressive surge in investor activity”. Roll the film on a few months and we can now see that “impressive surge” for what it was. The rally crashed. This time the words are “massive liquidation of investors’ positions”.

So the tide came in and the tide went out… It was the dollar’s turn to rally and that of oil and gold to fall. The billions in the hands of the then as yet untamed hedge and index funds rolled like rogue tsunamis.

Let’s stay with these GFMS guys, however, and see what they are forecasting next.

They are cautious about jewellery demand. The shoppers in Asia’s bazaars take out their wallets when the price is around $800, and it is already above that. Countries like India and Turkey are very price sensitive.

But one can’t argue with GFMS’s expectation of a still deepening US crisis, nor the likelihood of interest cuts to fight off recession. So, a reversal can be expected in the dollar. As they say, a very stimulating environment for gold.

Nor will it be just what is left of the hedge and index funds who will return to gold. This time the pool of investors will be very much wider, Isabel and I believe. As, GFMS say from their privileged vantage point as part of the precious metals industry, “it’s largely just the short term players that have bailed out to-date.”

Everyone will be back in! And GFMS’s story on price prospects -. “Well above $900.”

Keep buying.

Erin and Isabel.

P.S. For more ways to profit from gold and other natural resources click here and discover “the biggest profit play for the boom in China.”

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