It is not the opening session of the week that made all the difference, but rather last Friday’s impressive double spike, repeated for the second time in mid-session. These technically provoked moves are clear indications of a market trying to find its limits and move on.
Fair price for gold?
Technically, gold has captured a positive near term momentum that would reasonably lead to safer price levels. Moving between $1,246 and $1,258 per ounce, gold prices finally settled above the $1,250 per ounce mark, which is where they are still moving today.
What really concerns us at this point is gold supply which fell short of demand last year and without the huge liquidations of gold ETFs there wouldn’t have been enough gold to meet the massive physical demand, mainly coming from the East. The huge take-down in the price of gold had a direct and explosive impact on demand.
As long as it is profitable for miners and refiners to produce new gold, there is really no problem with gold supply. At the beginning of each year, GFMS analysts make a demand forecast, which is usually spot on, as they consult all major players in the market. Supply is then met with new gold production and scrap gold supply.
The worrying fact is that gold scrap supply has been steadily declining in the last 5 years. From 1,735 tonnes in 2009, it fell to 1,591 tonnes in 2012, although gold prices were at much higher levels than they are today.
The very real problem the gold market is now facing is that it’s running low on supplies of available gold scrap, while at the same time prices are near miner’s break-even point. And it is really not fair that the market should be swamping in such conditions.
Gold prices cautiously regaining lost ground
For the average investor, supply and demand issues are hard to follow, and we all know gold is not really a rare commodity. Having said that, gold has no reason to see lower prices, as demand remains strong, and the same goes for fundamentals.
The sudden drop from $1,300 an ounce levels was a reaction to the debate concerning the EU’s economic policy. Voices calling for a more socialistic distribution of financial resources sounded threatening to gold investors who knew that investing in precious metals is very much part of a capitalistic system.
Still, falling interest rates in the Eurozone, the potentially growing geopolitical risks for the European Union as relations between Russia and the West are deteriorating-both sides remaining adamant in their positions while people are killed by the hundreds in Ukraine- and the pale figures of US economy should at least be acknowledged as significant factors to keep the market on safe ground.
Always remember that a buying opportunity arises not only when prices are relatively low, but also when they are safe from dropping lower, and have potential for going higher.
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