If it can be said that since 2001, gold has been slowly rousing from a two-decade-long slumber, then in the past month we’ve watched gold bolt upright as it’s gulped down its first strong cup of coffee of the day.
The strength of gold’s upward price move in late November and early December to a new 24-year high has been truly breathtaking to behold, even for your typical long-yearning gold bug.
After spending the first three quarters of 2005 hovering around the US$430-per-oz. mark, gold prices moved up to the US$470-per-oz. level in October, paused until the first week of November, and then marched powerfully through what turned out to be a series of phantom resistance levels all the way to US$541 per oz. on December 12 in Hong Kong trading, before pulling back to US$520 per oz. at presstime.
The pull-back is partly attributable to a firmer yen and new, extraordinary margins imposed on the Tokyo Commodity Exchange’s gold futures, which were trading at an unsustainable US$20-per-oz. premium over the London spot price, instead of their usual premium of about US$1.50 per oz.
Since the cyclical rally in gold began in the spring of 2001 and up until a month ago, gold had been behaving as the anti-U.S. dollar, moving in reverse lockstep to the greenback, even on a minute-by-minute basis.
However, one of the most remarkable aspects of gold’s recent performance is that it was able to rise in spite of a year-long U.S. greenback rally, fuelled by the U.S. Federal Reserve’s ratcheting up of overnight interest rates.
With this interest-rate tightening cycle nearing its end, and the U.S. dollar softening as a result, gold bulls have even more reason to be optimists about the yellow metal going forward.
Indeed, gold has now gone beyond behaving in the market as just another currency. It has been trading for a month as the king of currencies, rising strongly against them all. Heck, gold’s so hot, it’s even outperforming gold equities this quarter.
Equally encouraging, this latest gold rally has been driven in large part by physical demand, both from Europe and Asia, particularly Japan.
Little brother silver also showed its latent sympathy with gold, poking its head briefly above US$9 to spike at US$9.23 per oz. — a level not seen since 1987, when silver prices peaked at US$10.93 per oz.
Silver’s recent performance even blasted past 1998’s peak of US$7.81 per oz., when it became widely known that value-investment guru Warren Buffett had waded into the silver market.
Other members of the precious metals family tracked gold, too: platinum prices shot into the rarified atmosphere above US$1,000 per oz. — a 25-year high — before falling back; while palladium broke through the critical US$270-per-oz. level to trade at US$297 per oz.
Precious metal prices were also rising in tandem with a broader commodity rally — driven by rising leading indicators for healthy global economic growth — that has seen surges in prices for aluminum, copper, zinc, lead, oil, gas, sugar, soybean meal and cotton. (Incidentally, the worst-performing commodities this year have been tin, lean hogs and cocoa.)
As the cyclical bull market trots into 2006 and beyond, it’s worth keeping in mind that the real average price of gold during the period 1968-2004 was only US$508.18 per oz. in 2004 dollars, according to GFMS, meaning this latest rally has only brought gold back to its long-term mean, and we’re still a long way off from matching gold’s 1980 average of US$1,408.61 per oz. in 2004 dollars.
We’ve got a long way to go yet, and it’s going to be a fun ride.
Be the first to comment on "Gold struts its stuff"