Location: Home > News > Gold, central banks and the OIL bubble

Gold, central banks and the OIL bubble

  • Description

Date: 2010-10-06 12:47

A slight change of the Fed’s statement in September initiated a massive run away from the dollar. Yesterday’s BoJ decision to enter the easing war (basically, BoJ needs to ease more than the super-expansive Fed to ensure higher USDJPY rates) only fueled a search for alternatives to the dollar and the yen.


Gold (and other precious metals) is indeed a nice target for speculators. It is rare (at least rarer than a massively printed dollar), easy to store (for funds) and in shines (for some individual investors). Let us be clear on one thing – the rally on gold is speculative not fundamental in nature (it used to be but it was a long time ago). If the jewelry demand (absolutely the key “real” use of gold)  was weak at 800$/ounce there is really no reason for it to get stronger at 1350$, especially in those uncertain times. Weakness of the dollar is partly an answer, but no more than partly. A price of gold rises significantly not only in USD terms but in consumption-weighted currency index (including euros, yens, rupees and others) as well.

Nevertheless the gold price might move up for as long as people believe that this is the only direction to go and cheap funds do encourage this type of reasoning. This reminds us of the 2008 oil bubble when everyone was concerned about the peak oil (that there will not be enough oil soon) and the oil’s price was nearly two times higher than today. Can the story repeat so soon? The market of gold is smaller than of oil, gold is easier to store and more popular as an investment. So yes we can imagine.      

Technically, gold’s price just broke through an upper barrier of an upward yawning wedge, signaling huge momentum of the rally and forcing us to look at long intervals in search of resistances.

On weekly chart, upper bound of a long term upward channel (encompassing the price of gold for two years) could be the first resistance at ca. 1450,00 USD – that’s a healthy 100 USD per ounce of an upward potential. Support is provided by the lower bound and also by the June’s high of 1265,00 USD. For as long as the lower bound in not broken we have an upward trend on gold.

Przemysław Kwiecień, Chief Economist

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more