Gold, silver and platinum drift. Where to now?
Lawrence WilliamsLONDON (Mineweb.com) --A slight recovery in the rating of the US dollar, and the nowadays long run in to the Christmas holiday has seen gold drifting well below its recent highs - but still only back to the level of just over a month ago. As gold has fallen, it has dragged silver and platinum down with it and to an extent the yellow metal will probably remain the main driver of price levels across the precious metals sector in the short term. Europe nowadays virtually closes down between Christmas and the New Year, so with the festive season with us activity may be a little muted.
Chartists will point to a strong resistance level to further falls at around the $615 mark - where the price resides this weekend - and foresee another decline should this level be breached substantially, but wouldn't yet see this as the signal for a bear market to develop in precious metals unless the fall continues down to below the $580 level. Anything above this they would see as a correction from which the metal price should bounce back. Most serious commentators still see the metal testing its 2006 highs of well above $700 during 2007.
The precious metals price rises of recent weeks have arisen from dollar weakness, so it shouldn't be seen as too surprising that a small - and it is a small - recovery in the dollar against European and Far Eastern currencies sees a corresponding correction downwards in the gold price. The big question is whether the mild dollar recovery is likely to be sustained. The latest economic indicators suggest that the US economy is not turning down quite as fast as some suspected, and prospects for increasing US inflation are not quite as poor as predicted and the market has reacted with a little sigh of relief.
However, there is no doubt that the US economy is still weak compared with the world's other major markets and if one looks at dollar charts the recent rapid fall may have been overdone - hence the correction - but overall the trend is still downwards, which suggests that the gold price may well rally, but a return to the $640-$650 level may not be rapid, and is now probably unlikely to occur before the New Year is well under way. Should gold move up through the $650 level, the major upper resistance level looks like being around $680 and should this be breached then the run up to the mid $700s could be rapid.
There are a lot of 'shoulds' in the above analysis. As always the gold price and dollar movements can be unpredictable, but the overall trend still remains up for gold and down for the dollar. Silver will almost certainly follow gold, whichever way it runs, but platinum - where industrial demand is much more significant, could buck the trend should gold and silver stay weak
For investors in gold stocks though, little should have changed. The miners are mostly very profitable at current price levels - even the marginals. Cost escalation is a little worrying though and the dollar weakness suggests that inflationary pressures on North American mines (and those mines in countries where the local currency tends to be tied closely to the US dollar) may suffer most from these pressures as machinery and supplies from Europe and the Far East get more expensive. And, because people tend to refer to the price of gold in US dollar terms, the perceived higher price levels for the metal have generated pressure from stakeholders (labour and government) that they should be getting rather more of what is seen as a much larger pie.
Overall - unless the dollar's recent upturn is sustained, which seems a little unlikely on the data available - then one can expect a recovery in gold and silver, although perhaps not as rapid as we might have thought a couple of weeks ago. Platinum should move up anyway, purely on fundamentals. Overall the current weaknesses may prove a buying opportunity.
Even bank analysts have been raising their gold price predictions for 2007 - and this is the most cautious of breeds. The independents for the most part are looking to $700 gold, while the real gold bulls are still pushing $1,000 + as their take on the market. There aren't a great number of real bears on the gold price out there at the moment, although they may come to the fore if there is further weakness in the price. You can rest assured that wherever the price goes there will be someone out there who will claim to have predicted it absolutely accurately.
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