Gold price up 15%, silver 30%

Precious metals investors have had an extremely rewarding last quarter. From $1,555 per ounce that spot gold prices closed on June 28, 2012, gold prices are up 15 per cent, reaching a high of $1,788 last Friday, September 21, 2012.

It’s the QE3 effect, experts are now claiming although the surge in gold seemed to have started much before US Federal Reserve Chairman Ben Bernanke announced the third round of the quantitative easing programme on September 14, 2012.

Spot gold prices breached $1,740 per ounce on September 7, 2012, a week before Bernanke’s unexpected announcement. While analysts maintained that QE 3 was a given, the timing took the markets by surprise as most believed the Fed to wait until after the US presidential elections in November this year to launch their new round of quantitative easing program.

Nevertheless, sitting as it is on gains of 15 per cent in less than three months, gold is still a far cry from the all-time high of about $1,920 per ounce that the yellow metal made this month last year. Can gold test those levels this year?

“We expect the customer base to return to buying gold in a stronger fashion, once the $1,800 mark can be broken and sustained,” says Gerhard Schubert, Head of Precious Metals, Emirates NBD. In other words, don’t wait for gold to hit $1,800 an ounce – there could be a mini-stampede into gold once it sustainably overcomes that psychological resistance.

“Physical buying in the region is starting to normalise with redemption and new sales starting to level out more,” says Schubert, who said in his report that support for gold is at $1,752 and $1,734, while resistance is at $1,790 and, once that is breached, then gold prices will face the next resistance only at $1,830.

And how long before that may happen? In his latest weekly precious metals report, Schubert says despite the QE boost, investors are still in a wait-and-watch mood when it comes to gold, as the metal could, in the short term, actually decline before taking off.

“The market, it seems, is still very much looking towards the upside but the amassing of long positions from long-term holders and from short-term speculative participants make us wary of a short term ‘wash out.’ It looks like everybody who has any reason wanting to be long is already long and the question is who or what will be the spark to initiate even more follow-on buying at this stage,” he wrote in the report.

On the other hand, silver has surged 30 per cent in less than three months, jumping from $26.81 per ounce on June 28, 2012, to $34.69/oz on September 21, 2012.

The white metal has really rallied in this quarter, and experts maintain that international interest in silver bodes well for its prices going forward. “There seem to be a fresh bout of confidence surrounding silver, with new investment out of China being most visible,” says Schubert.

“The current performance does gives reason to believe in the sustainability of the uptrend, but the influence from gold cannot be underestimated,” he says, but adds a word of caution for short-term investors.

“I think that it would be difficult for silver to stay and hold above $34 if gold would see a strong, short-term orientated, long position liquidation as the situation in the yellow metal is looking well overbought.” That is, although solver has rallied double that of gold in the past three months, its fortunes remain tied with its more precious cousin, and any downtrend in gold may see an exaggerated decline in silver as well.

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