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This was a story published today:
JOHANNESBURG – Gold is poised for a strong move over $400/oz, as the massive fund interest in the metal pushes for a breach of the key level.
The London trading session hedl its breath for the move today, and spot gold was last at $397.60, edging up after a hard run which saw it trade at $396.70 on Friday, up from $378.95 a week earlier. Gold is now close to levels last seen in February 1996, when it last traded over $400/oz. A move over $400/oz would cap a strong run from $346.70 - the level bullion traded at on January 1 this year.
The euro was last at $1.1827, a symptom of the dollars weakness, and a harbinger of good things to come for gold. “With the euro at these levels I think we’ll see gold go through $400/oz today,” a trader at a major South African bank said. “There are a couple of big players with options to exercise at $400/oz, so I think the market will trade over $400/oz.”
The action in the futures market is also positive for spot gold - December futures traded as high as $399.10 on Friday, signaling the likelihood of a move to $400/oz in the post market. The open interest in gold stands at a record 16 million ounces as funds have built up their interest above the $394/oz.
“The longs have built up a lot over the last week after we hit $394/oz, that has really been our support level,” the trader said.
The trader said gold did not usually breach key levels in the London session, as traders in London traded the metal in a narrow range, waiting for their counterparts in New York and Asia to push the metal over key recistance levels. “I think the real will to push gold through $400/oz lies in New York, that is where the funds with the major interest in gold are based,” he said.
He said the increasingly unstable situation in the Middle East, seen by many as a key driver for gold’s recent run, was in fact an excuse to drive the gold price higher. “The Middle East has been going for some time, Iraq has died in the market. I think the US economy is not looking good, and the rate hikes everyone is waiting for don’t look like they are coming,” the trader said.
But another South African bullion trader said he though the situation in the Middle East was a real cause for concern. “The war on terror is now global, the threat of terrorism is not gone. There are terrorist attacks in Turkey against specific targets, they are going for certain groups,” he said.
The trader said there was a view forming in the market that Iraq may become the US’s new Vietnam, a military quagmire which it may find it hard to exit from. The uncertainty created by the attacks has weighed on the dollar, and fed into the market’s view of gold as a haven, the trader said.
Above $400/oz
Traders said gold faced a host of uncertainties above the crucial $400/oz level, with the possibility of a period of consolidation helping to send it higher, and the threat of fund selling negating its gains.
“If we can get to $400/oz and hold it, we will enter a new stage in the gold market,” the trader said. “There will be some profit taking above the $400/oz level, but if we can hold on above that for long enough, we could see gold go to $410/oz or even $420/oz.”
The trader said that if funds bailed out of gold, the extent of the selling could be disastrous. “There are gold investors who have options below $350/oz – that gives you some indication of the damage fund selling could do to the gold price,” he said.
The most likely scenario, the trader said, is for gold to sink back to levels around $390/oz or just under that level.
