The price of gold broke through the psychological $1300 an ounce level this morning and silver broke through $20. Both these commodities have been victims of sharp falls in 2013. Gold jumped to its highest level in a month on technical buying, also weakness in the US dollar has encouraged buyers into gold, platinum and silver. Physical buying in Asia and the Middle East has helped push the price higher in recent weeks from its three- year low of $1180 in late June. The rally should continue, there are still a lot of short positions and these need to be filled. The fall in the price has been severe and perhaps now we are seeing a turnaround.
Hedge funds and money managers raised their bullish bets in gold and silver futures and options in the week to July 16, while they trimmed net shorts in copper, a report by the Commodity Futures Trading Commission showed last Friday. This is further evidence that gold may have bottomed.
Gold has had a good couple of weeks after the Federal Reserve’s assurance that the timing of any tapering in economic stimulus is not set in stone.
Rising inflation in China over the last few weeks has also acted as a catalyst in driving the price of gold higher in the last couple of weeks as gold is a hedge against inflation. Investors buy gold in an effort to shield wealth from the effect of rising prices. Demand for gold coins and bars in China has been picking up after prices hit a three-year low last month.
Sentiment has certainly changed for gold in the last few weeks where there seems to be more bullishness for the yellow metal. The rise above $1300 is bullish and the next important level is $1325 and then expect a rally to $1400 in the short-term, however longer-term there are still concerns that gold will trend lower as the US dollar strengthens. One route of looking to benefit from the fluctuations in the price of gold is to trade some pure gold play shares – African Barrick Gold, Petropavlovsk and Randgold are three of the more popular listed UK companies. African Barrick and Petropavlovsk are 90% off their peaks so they are certainly ones for bargain hunters/bottom fishers. Returns may be immense but obviously they are high risk/high reward.
Further reading: Gold Consolidates within Attempted Recovery
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