Commodities | Jul 04 2008
By Chris Shaw
In an outcome the techical analysts at Barclays Capital had expected gold failed in its first attempt to break through resistance at US$947-$955 per ounce in recent sessions and this could spark some much needed short-term weakness in their view given momentum readings are currently overbought.
If this weakness was to be extended the analysts would look to buy any dip to around the US$920 per ounce mark for a further test of current resistance, taking the view as long as the market can consolidate above the neckline of a large basing formation at US$914 per ounce it sets the scene for a test of US$970 later this month and eventually US$1,000 per ounce.
But as National Australia Bank minerals and energy economist Gerard Burg suggests, a rally later this month or in coming months may be something of a last hurrah for gold as in the bank’s view the price will average around US$920 per ounce in 2008 before drifting lower next year.
The view is based on two points, the first being the bank expects a strengthening in the US dollar through next year as the US economy begins to recover from its current weakness, which would put pressure on gold prices. The second is a reduction in physical demand for gold as producers have slowed their rate of de-hedging and as high and volatile prices have kept physical buyers of the metal at bay.
With respect to de-hedging Burg notes the global gold hedge book now stands at something around 700 tonnes, which is well down from the 3,000 tonne level at the turn of the decade. While this de-hedging process limited the downside for prices as it effectively removed gold from the spot market, the decline in producers following such a strategy is likely to be enough to justify a softening in prices in his view.
As well Indian consumption of gold has fallen in recent months as they deal with the volatility in prices, Burg pointing out World Gold Council figures show Indian demand falling by 50% in the first quarter of this year. This has flowed through to lower global demand as the bank estimates global consumer gold demand in the first quarter was down 23% in year-on-year terms.
Add in higher scrap supplies at present and the market for gold appears a lot less tight than was the case when prices were racing towards and through the US$1,000 per ounce mark a couple of months ago, leading Burg to conclude prices will decline into 2009.