2009-11-19

Gold Touched Another High At USD1,148

Three weeks ago, report show on gold support in the physical market despite gold reaching new highs at that time (the dollar was trading at $1.4850-$1.4900 against the euro). This morning, gold touched another high, at $1,148, while the dollar is only slightly weaker, at $1.4950 against the euro. Still we see gold upside, as support in the physical market remains intact. Should gold reach $1,150 in coming days, $1,200 may be on the cards.

When gold breached $1,000 in early September, physical selling went neutral (see physical index approaching zero). A value for the index above zero shows net buying. A value below zero shows net selling. The higher the value on either side of zero (in absolute terms), the greater the buying or selling pressure. Buying momentum spiked sharply in Q4:09 and, although down from recent highs, we still see net physical buying. As a result, support remains in tact. I believe buying momentum will remain positive for most of Q4:09 on high seasonal demand. Estimated that Q4 seasonal demand is 3x higher than in Q3 (after accounting for price and currency effects).

Most of the investor report believe the current gold rally still has some legs irrespective of high investment demand. However, they remain mindful of what can happen in February/ March 2010 (a very weak period for seasonal demand). From what we saw at the start of 2009, physical selling could be intense. Potential scrap flows may neutralise some of the dollar weakness we expect in Q1:10.

Gold is finding very strong support even though the dollar is failing to break above $1.5000 against the euro. Should gold breach $1,150 in coming days, $1,200 could be on the cards. However, if gold fails to breach $1,150, and if it consolidates above this level in the next few weeks, the probability of reaching $1,200 may become smaller, the closer we get to year-end.
Gold support is at $1,130, and resistance at $1,150 and $1,165.

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