Many Now Bullish on Gold as It Hits Highest Price Since July 1
Posted by Brian Ford on October 14, 2015
Investors are starting to bet on gold and against a U.S. Federal Reserve interest rate rise. The precious metal reached its highest price in three and a half months on Wednesday, soaring to $1,175 per troy ounce in morning trading. This was the best news for gold bugs since July 1, and a report from Daily FX is calling $1,170 a magical price hurdle that, if eclipsed, will mean that gold is heading towards, and perhaps past, $1,200 per ounce for good.
The UK publication The Week feels the same about this critical $1,170 threshold. “This was seen as a critical test for gold, as traders often sell out of rallies at such technical benchmarks, and they can therefore act as a ceiling on upwards swings,” stated the outlet. “Breaking clear of the threshold indicates a stronger surge to come.”
Analysts are also crediting the price increase to Chinese consumers who are looking to hedge against further stock declines after more sluggish economic data was released. These benefits of these low figures for gold prices are multifaceted, as they are also causing many to believe that the Fed simply cannot make a move to raise rates this year now — even if upcoming domestic economic numbers improve as the nation enters the holiday season.
“We have seen interest from Chinese consumers and investors rising again on gold,“ Daniel Meng, an analyst at CLSA, a Hong Kong brokerage, told the Wall Street Journal. “We believe this is partly related to the turmoil of A-share market and some worries about the recent renminbi depreciation.”
The newspaper also noted that one of China’s largest gold retailers, Chow Tai Fook, reported a 22% increase in gold product sales over the past three months. Importantly, this jump preceded the Golden Week holidays of October, which have historically kicked off a demand surge for gold buying in China. India has a similar holiday season looming that is also expected to rise demand there.
Combined, all these factors have many bullish on gold and even some skeptics are starting to come around. Eugen Weinberg, head of commodity research at Commerzbank, is very optimistic about the near-term prospects of more price spikes.
“We have been positive on gold for quite a while on the back of very low interest rates and continuing jitters on equity markets, as well as on the geopolitical issues and diversification by the central banks,” Weiberg wrote on FX Street. “It is not only that the investors from China, India, and elsewhere are buying gold, but also the central banks moved strongly to the buying side of gold, hiking up their reserve by several hundred tons per year. Since this year we know also the official data from China, which also confirms previous statement. Thus, that is why we believe that the gold prices are likely to increase.”
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