Bulls and bears in gold tug-of-war

25 January 2010 | 03:37 Code : 19654 Geoscience events
Given what is being thrown at it, gold has been performing pretty well in the...

Given what is being thrown at it, gold has been performing pretty well in the past week or two, despite losing a little ground to the bears and short sellers.  There seems to be a growing expressed opinion by financial analysts - not the gold bugs who are all still looking for another $100 or more on the gold price this year - that the recent burst up through $1,000 has been overdone and a sharp correction is being looked for.  Conversely the same analysts, perhaps not as confidently, are also saying that the fall in the value of the dollar against its peer currencies has also been too far too fast and are beginning to talk the greenback up - at least in the short term.With the paths of both the dollar and gold highly dependent on investor sentiment, given the plethora of adverse comment which has been flowing the seeming difficulty in pushing gold back much below $1,040 has to be encouraging for those who feel gold’s run is far from over.  Initially gold was seen stairstepping downwards towards current levels and many expected this to continue, but closing the week at $1,044 an ounce, gold has proved fairly resilient.  Every fall so far has been met with some strong resistance and although the bears have been prevailing so far they have not succeeded yet in breaching the line in the ongoing tug-of-war.  Clearly the bulls have not admitted defeat.  There is enough nervousness continuing about the state of the global economy to ensure that there are still enough high ticket investors - and maybe governments - who are still looking to gold as a wealth and reserve protector in this time of financial stress.The lessons of 1929 had seemingly been forgotten - and maybe this time is different - but continuing dissemination of information in the media about the Great Depression, which, in effect, lasted from October 1929 until the Second World War, and the parallels with the crash of 2008, ensures there is likely to be some continuing nervousness out there until people are sure this downturn is well and truly behind us.  And this is likely to take some little time yet.Overall the U.S. dollar is still perceived as weak and even if there is a short term greenback recovery this may well not be sustained - and a falling dollar means rising commodity prices, including gold, at least in dollar terms.Gold has also survived a statement from the Russians - since modified - that the government was planning to sell up to 50 tons of gold before the yearend to meet an imbalance in the country’s budget.  This should have been particularly worrying news for gold investors as Russia had been seen as a country which was likely to buy gold, not to sell it.  Even so, the news in effect had little impact on the gold price, and now the Russians are saying that they are postponing any sale plans - and that the amount, if and when any sale should take place, is more likely to be around 25 tonnes rather than 50.So although gold has fallen back a little over the past two weeks, it is not a real cause for concern for the gold investor yet.  If it holds at or near the current level this has to be a positive for those who are looking for further gains before the year end.  But should continuing bear pressure bring the price down to around the $1,000 level or below, then that would be a real sign that the bears are winning the tug-of-war for now and a further price collapse would be probable.  But on balance, recent patterns suggest the bulls could regain the upper hand and perhaps $1,100 by the year end is still a realistic target.

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