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Mining Web...A cautious view

  1. 470 Posts.
    >Investor apathy still hampers gold

    By: Stewart Bailey


    Posted: 2002/09/05 Thu 18:27 ZE8 | © Miningweb 1997-2002


    JOHANNESBURG – Traders and equity analysts tempered their enthusiasm at the latest run in the gold price today, warning that the latest spike to around $318.50/oz was likely to be short lived. Few are prepared to predict a price for bullion, but the consensus is that sustained, genuine investment buying for the metal is the only hope for a real rally in the medium term. But just what the event will be to trigger the quantum leap in gold's trading range, remains to be seen.
    On a technical front, dealers said today (5 September) gold faced particularly strong resistance at $318.50/oz. One Johannesburg-based bullion dealer said speculative action had been driving the market this week, making it unlikely that the current run would have the legs to take bullion over $320/oz.

    "The market has been buying a lot of low delta calls. What that essentially means is that if there is a significant rally these speculators will be automatically long gold, which they'll sell almost immediately," said the trader. "A lot of the price action this week has been from speculators, so the bottom line is that it's gold which is going to come back into the market," he said.

    One London-based dealer said the market had already priced in much of the bad news surrounding a US-led military strike on Iraq. "To a degree that is all already priced in. The market is aware that Bush will seek approval for an attack on Iraq and that is part of the reason gold is trading around $317/oz and not at $305/oz," said the trader. "For gold to go above $320/oz and stay there, it will have to be on genuine buying," he said, adding that any news headlines before the weekend would be unlikely to drive the price substantially higher.

    But despite the overarching bearish sentiment, the traders remain reluctant to predict what effect the eventual assault on Iraq would have on gold. "This latest strength in the price – this week – is only a very short uptrend and doesn't indicate a medium term rally. That is not to say gold can't react violently to significant world events but that will also depend to a large extent on what orders there are in the market," said the trader.

    Their reticence to call a price could have something to do with gold's reaction to the Iraqi invasion of Kuwait in 1990. The invasion, the precursor to the Gulf War in 1992, caused sufficient disquiet in the market to help bullion to jump $40 to over $400/oz.

    The upcoming anniversary of the World Trade Centre terrorist attacks also appears, anecdotally at least, to be giving something of an underpin to bullion. "As we approach the anniversary of the attack on the United States, the gold market remains less liquid than normal. Together these factors are combining to skew the short-term risks to the upside. If nothing else, the ratchetting up of security arrangements will probably lead to an increase in the number of scare stories and this could see gold trend higher over the next week," said John Reade, gold analyst at UBS Warburg.

    Equities

    On the equity front, analysts in Johannesburg are advising clients to consider taking profits at the margin, on their gold investments. "Barring an invasion of Iraq I think its time to take profits; sell the stuff at the margin and retain a market weighting in gold stocks," said one analyst at a multi-national investment bank based in Johannesburg.

    He said the buy calls on gold stocks made at the beginning of the quarterly reporting season had proved correct, but said it was unlikely in the short term the shares would perform considerably better. "Remember that this is now a trading sector and the shares should be treated as such," said the analyst. AngloGold has climbed 15 percent since it reported its results for the June quarter, while Gold Fields has gained 32 percent and Harmony 37 percent.

    In Johannesburg today, the gold sector gained 2.9 percent to put it over the key 3,000 point level; by late afternoon the index was trading at 3063 points.

 
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