Gold makes the world go round

The price of gold continues to grow at a fantastic rate, reaching new heights. Not that long ago its price surpassed all expectations, and today gold is more expensive than platinum. On August 9, COMEX recorded a new high of $1,776.8, and the growth since July 1 amounted to $290, which is the largest monthly increase in the recent years. Experts believe gold is the most reliable asset of the second half of 2011.

Today investors on the stock exchanges recorded a growth of gold prices in the range of 3.5%. This figure amounted to $1,778 per ounce, according to The Financial Times. On August 8, traders bought 950 million ounces of gold through trading on the exchange funds, the greatest volume of trading since February 2009.

Experts point out that under the conditions of instability in the U.S. gold grows as investors try to invest in safe assets whose range is constantly shrinking, emphasizes FT. According to forecasts of "Goldman Sachs", one can expect an increase in the price of gold to $1,860 per troy ounce in the next 12 months, while "JP Morgan" predicts the maximum price for gold at the end of the year at $2,500. For its part, HSBC suggests that by the end of the year gold could trade up to a level of $1,850. The forecast for 2012 in light of volatile prospects in financial markets has been increased by 8.3% - to $1,625 per ounce, says "Fox Business".

Forecasts of this kind raise questions about the reasons for this trend. Alexander Belyakov, an analyst of "Investcafe," said that the change in quotation is due to growing problems in Europe and the USA. Reduction of credit ratings and in particular the latest developments in the U.S. economy have caused a sharp demand for gold as a safe haven from riskier assets.

According to him, the entire situation with gold can be called a "bubble", however, high prices for this metal have no impact on the global economic situation. No one will sell gold without a good reason, so the growth may last a very long time. The only thing that can somehow reduce the price of gold in the future is the change of monetary policy of the Fed's that held a meeting on August 9.

Belyakov told that central banks have recently been actively buying gold, increasing their reserves. In recent years the greatest demand was demonstrated in Russia, Mexico and Thailand that over the past year replenished their reserves by 42.99 tons and 9 tones, respectively. The physical assets of the largest mutual fund SPDR Gold Trust rose by 23.5 tons, exceeding 1.3 tons for the first time since 2010. If the fund purchases continue at this rate, a new record may be set soon - over 1.32 tons of supplies.

"As you can see, the dynamics of buying gold only grows. In the future we should expect certain decline, given the current sky-high prices, but I do not think that they can be very intimidating to companies and central banks. According to many opinions and forecasts, gold will continue to go up, and hardly anyone knows when it peaks.

Let's try to figure out what may affect the depreciation of gold in the medium term. Recently, the main driver of growth for the quotations has been the U.S. The last event the markets listened to with great attention was a speech by Fed Chairman Ben Bernanke, which is especially important in light of recent events with the collapse of the stock exchanges of the country. According to him, it is likely that the weakness of the economy noted recently may last longer than expected, and that there may be another risk of deflation, implying the need for additional support for the economy. The Fed points to the continued existence of low interest rates over a long period of time. It is also considering lowering the rate in case of launching a new program QE3.

If, however, the new program is launched and the "artificial" capital is brought to the markets, it will support the stock markets and cause the fall of the dollar, which in turn will affect the rate of gold. In this situation a prolonged correction is possible, but overall "bullish" trend for metal will continue, and sales will provide excellent opportunities for future purchases," said the expert.

Thus, we can assume that from the technical side gold is overbought, and there is a need for correction. This rapid growth cannot last too long. Prerequisites for this correction already exist: a decline from the current maximum of $1,775 by over $50. At the moment, the basic level of support is the uptrend from July 6, the next support level is a mark of $1,680, and resistance is located at $1,750 and $1,775 marks, according to the analysis of Investcafe.

Belyakov said that it would make sense to "partially close the open shop and wait for the reduction in the area of $1,680. With these levels, consider buying short-stop orders with the immediate goal of $1,775. In terms of the futures on FORTS the recommendations are similar, based on the current levels of contract."

"Thus, both the fundamental and technical analysis point to the continued growth of gold, but we should monitor closely the situation in the global economy as well as possible changes for the better that may put pressure on gold over the medium term," sums up the expert.

Irina Loseva.

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Author`s name Dmitry Sudakov