Gold Conquers New Highs Against Weak Dollar

Traditional profit taking suspended “golden rally” in the world markets. However, the growth potential is apparently not yet exhausted. A new record of $1,072 for a troy ounce was set recently. Gold prices were moved up by the weakening US dollar, but as of October 15^th the December contract for gold supply lost $14,10 or 1.3% at the close of New York trading, and was worth $1050,60 for a troy ounce. However, gold remains the main speculative idea in the market.

Some experts talk about excessive supply. Strengthening of the US dollar could cause a roll-back, but there is no basis for it at the moment. Barclay's analysts bet on the continuation of the growth of primary assets. They told Bloomberg that in the beginning of the fourth quarter they expected the trend to continue as primary commodities would gain a larger share in the global investment portfolio.

In the second and third quarter investment in commodities experienced rapid growth. In the second quarter the volume of assets of specialized funds increased by $34 billion. Sovereign funds of Qatar, Singapore and China were especially active. China tried to take advantage of high commodity prices to create strategic reserves.

During the same period of 2008, the funds reached a record sum of $270 billion, with a quarterly gain of $46 billion. The gain was followed by a sharp decline leading to the worst results in the entire history of the funds, $164 billion, Reuters reports.

In the third quarter of 2009, the assets of commodity investment funds increased by another $15 billion (7%) to $224 billion, Barclays report says. The largest part of the gain was caused by the inflow of new investments that amounted to $12 billion, and another $3 billion of the gain was caused by the increased prices of commodities. The assets of the funds aligned with the structure of commodity indices grew by $6 billion and amounted to $92 billion.

Within the last two weeks the record prices of gold attracted a lot of attention. This is confirmed by a large number of recently opened gold positions. If the growth stops and correction occurs, these positions will start closing, which will negatively affect gold price quotations.

Macroeconomic data released in the US at the end of the week again pushed the price of gold upward. Lower level of consumers’ trust, reports of the largest banks indicating obvious signs of crisis in the retail lending sector and growth in foreclosures caused increased interest in safe assets. On the Comex division of the New York Mercantile Exchange, December futures for gold supply increased by 0.1%, to $1050.70 for a troy ounce.

Vitaly Salnik.