Gold price breaches $1,900/oz
Spot gold prices made a new lifetime high – fourth in as many sessions – of $1910 per ounce Tuesday morning as global economic concerns continue to push investors into taking refuge with the safe haven metal.
In the UAE, 24ct gold spiked to Dh227.50 per gram while 22ct gold was being retailed at Dh214 this morning, according to prices supplied by the Dubai Gold & Jewellery Group. Spot gold in international markets made a new lifetime high of Dh7,020 per ounce this morning, according to www.GoldPrice.org.
Gold is now up over 33 per cent in 2011 year-to-date, with a number of analysts warning of an asset bubble bursting anytime on speculative buying. “Gold is now officially out of control,” quipped Jeffrey Rhodes, Global Head of Precious Metals and CEO, INTL Commodities, Dubai.
“Gold is strong in any and all currency terms and it is now entering that stage when prices go ‘parabolic,’ ” commodities analyst Dennis Gartman wrote in his Gartman Letter yesterday.
But when the price of anything goes parabolic, many investors know to stay away. “When we have a correction it could be violent,” said Jeffrey Friedman, a market strategist at MF Global in Chicago.
Talking to Dubai Eye radio this morning, Rhodes said that the gold price was being fuelled at least in part by investors who did not understand why they were buying gold. “This is a caveat emptor market – buyer beware,” he said for anyone considering to enter the bullion market at this point.
“In my view, between $1,650 and $1,750 an ounce will be a good entry point,” he suggested. Global investment bank Citigroup too released its new forecasts for gold, at $1,590, $1,650 and $1,500 per ounce for 2011, 2012 and 2013, respectively, warning that gold prices could fall to even below these levels in the coming few months.
“The cost of recovering gold [from underground] is about $850 [per ounce],” he said. “Adding a healthy 20 per cent margin would give you levels around $1,000 – with the current price, gold is clearly overvalued by about 90 per cent,” said Rhodes.
Nevertheless, the current bull-run in the gold market – which has gone on for an unprecedented 10 years now – could see the price breach $2,000 before the price correction sets in, analysts believe. On the other hand, there are others that believe that prices could go up to $2,500 within a few months.
Citigroup, the global banking giant, said yesterday that gold has a one-in-four chance of spiking to $2,500 per ounce.
The investment bank had previously considered that gold had a 5 per cent probability of achieving the $2,500/oz target, but in a note published yesterday, it said it had increased its gold price estimates in order to accommodate the impact that global financial tension is having on the metal.
“However, we expect those tensions and concerns to dissipate over time and do not believe that (price sensitive) jewellery demand will be able to make up for the loss of investment demand once sovereign financial tensions ease,” the banks’ analysts said.
While the gold price volatility in the next few months should provide ample opportunities for speculators, for pure investors, it’ll be perhaps best to sit out the next few months or indeed trade their gold for other precious metals – platinum or silver, for instance – which analysts maintain have a better chance of holding their current value and maintaining a gradual appreciation.