Gold Price Has Had Its Longest Fall In Eight Years But The Tide Will Turn

The Tide Will Turn For Gold

Date 12/09/2008

The Right Side

Erin-And-Isabel

The tide will turn for gold Now 28% off March highs, the gold price has had its longest fall in eight years!

Everybody is asking: has the gold price finally bottomed? Recently Investec Asset Management pointed that at $750/oz mines could start closing. So is this the floor?

Fact of the matter is that nobody knows.

If a woman’s intuition is to be believed, then it would appear that now is the time to buy gold. Indian housewives are certainly buying and Indian housewives, say American Precious Metals Advisors, are better forecasters than most analysts. Well that is not difficult, says Erin! And nor is it that simple!

Certainly banks keep changing their forecasts. Last week, Standard Chartered’s metals analyst revised his fourth quarter gold forecasts from $925/oz to $850/oz. Next year’s forecasts were axed, too, from $944/oz to $875/oz. Unsurprisingly this downgrading of forecasts trend began in August when the gold price slumped to around $770/oz. Then the Canadian branch of bullion dealers, Kitco, put this year’s yellow metal price at anywhere between a conservative $680 and $730. They’ll be patting themselves on the back now.

Not everyone is bearish on gold

But there is still positive sentiment around. A manager of the popular JPM Natural Resources Fund is confident that gold remains a well-supported safe haven and a hedge against inflation. That is down to "supply constraints in the persistently tight market and inflated price". Put it this way, major producers have around ten to 15 years of gold reserves (iron ore 50 years!). And besides, it takes around ten years to set up a new mine and deliver gold to the market. Fact not forecast.

Okay so let’s not be too hard on the forecasters. There are so many factors to consider. Take jewellery for example, the biggest component of physical demand. Earlier this year, everybody was beginning to wonder if gold jewellery had had its day in India. Demand from the world’s biggest gold jewellery buyers was considerably lower than previous years, down to sensitivity to a "high and volatile gold price".

But recent provisional figures from the Bombay Bullion Association show that the Indians are buying again— big time! In fact, in August, India imported 100 tonnes of gold, a 45% increase on August 2007! India’s jewellery manufacturers, who usually pay the world market price for gold, have been willing to pay $5 to $6 more! So that is one thing that is keeping the gold price from falling further.

In other traditional gold buying regions, demand has soared, too. The Abu Dhabi Gold Group reckoned August was the best month in 30 years. Demand from jewellers is expected to remain buoyant with upcoming Muslim Eid festivals and, of course, India’s Diwali.

And in America, the US Mint recently had to suspend the sale of Gold Eagle coins due to "unprecedented demand".

Supply is tight too

Meanwhile, production in Australia and South Africa is falling. The ongoing battle over provisions of electricity in South Africa is having a significant impact on the development of new projects.

So what is going on — all the demand factors seem to be in place? Gold’s fall in recent weeks is down to the greenback staging a comeback against other currencies.

Of course, the slippery slide of oil, which gold often moves tracks, hasn’t helped matters. Traders, too, have been liquidating long positions on Comex, the US exchange for metals futures.

The key is to watch market sentiment closely in the coming weeks. When there is broad consensus that gold has had its day, and share prices start to flatten out, it may just be a sign that the tide is turning.

Safe mining,

Erin and Isabel

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