Gold has been fighting heavy seas since posting a new record high last September. For gold owners, market volatility over the next few months may test even the strongest resolve to hold onto gold. For investors wanting to get in on the yellow metal action, it could be a golden opportunity to buy on a dip.
Edel Tully, precious metals strategist at UBS, lowered her forecast for gold prices, predicting that the metal would trade as low as $1,550 in the next month.
“Investors are not using this [price correction] as an opportunity to buy cheaper gold,” she said. “Instead, more are looking at the potential to short it.”
In the gold futures market, open interest on Comex has slipped to near a 2½ year low. The pullback is being attributed to indications that the U.S. economy is picking up, fading concerns about the euro-crisis, and softer gold demand in Asia.
Yet with the exception of some gold perma-bears in the mainstream press, few serious traders and analysts are counting gold out for the long term.
Lawrence Williams reported on MineWeb that Philip Klapwijk, global head of metals analytics at precious metals consultancy GFMS, speaking at the recent Mines & Money conference in Hong Kong, acknowledges a temporary pullback that might test $1,600 but sees gold possibly surging to a peak of around $2,000 this year, with an average price of about $1,800. Klapwijk and GFMS see as much as $120 billion of investment purchases going into gold in 2012, Williams said.
“Strong performance, uncorrelated returns with other asset classes and the advent of easily-accessible ETFs have seen investors make ever-increasing allocations to the precious metal." Yet once more, "An allocation to gold makes sense in a diversified portfolio,” advises the UK’s Armstrong Investment.
CENTRAL BANKS “BUY ON THE DIP”
While investor sentiment toward gold may have cooled a bit for the moment, central banks have pounced on the price pullback to beef up the gold in their vaults, reports Jack Farchy at Financial Times. “A sharp fall in gold prices has triggered large purchases of bullion by central banks, according to several traders with knowledge of the transactions. The buying activity highlights the trend among central banks in emerging economies to buy gold.
Central banks as a group made their largest purchases of gold in more than four decades last year. Emerging markets were and are the most eager gold buyers. They are increasingly concerned about diversifying their dollar-heavy foreign exchange reserves into other assets as the U.S. government continues a debasement of the greenback.
Meanwhile, European central banks, which had been a major source of gold-dumping, have essentially halted large gold sales.
BRITAIN BANK’S $17 BILLION BONEHEAD BLUNDER
In 1999, near the depth of the gold malaise, Britain’s central bank sold off 400 tons of gold from its vaults. The sale was announced well in advance with considerable media hubbub, giving gold investors plenty of time to bail out as gold prices sank on the news of a flood of new gold supply being dumped on the market.
The gold was sold for £2 billion, or about US$3.2 billion. This week, UK’s Chancellor of the Exchequer, George Osborne, said in his 2012 budget speech that the gold sold in 1999 would now be worth £11 billion (US$17.4 billion), nearly six times what the country got for its gold.
Osbourne told the House of Commons that the Treasury was getting back into gold bullion. “We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels,” said Osborne.
SOUTH AFRICANS PREPARING BILLION DOLLAR
CLASS ACTION SUIT AGAINST MINERS
Only a few years ago, South Africa was the world’s largest producer of gold.
As mines have been depleted and government demands mounted, South African gold production has fallen precipitously in recent years, dropping it to fifth in the ranks of the top gold producers.
Now South Africa’s gold industry is about to be hit with another heavy blow. Lawyers are aggressively signing up plaintiffs for what is shaping up to be the biggest class action suit ever seen on the continent of Africa.
According to a Reuters report by Ed Cropley, the case is based on claims by gold mine workers that they were systematically exposed to hazardous conditions without adequate protection. “The men - some South African, others from neighboring Lesotho - worked deep underground for many years, often with insufficient protection. They inhaled silica dust from gold-bearing rocks and later contracted silicosis.
Cropley noted that “A successful suit could collectively cost mining companies such as AngloGold Ashanti, Gold Fields, Harmony and global giant AngloAmerican billions of dollars, according to legal and industry experts.”
About the Author: Mike Fuljenz
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