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The Bullion Report for August 24, 2011 *PIC*

All the financial uncertainty swirling around the debt crises here and abroad have helped precious metals pull new price levels. Gold and silver have both broken out to high territory, with gold adding fresh high after fresh high. As the gold market piles on the new price records, it is worth reflecting on the milestones it is leaving behind.

In the last issue, I looked at some of the potential high prices that people are looking for in gold. It feels like gold has been hurdling over more price forecasts set since 2008, when the financial crisis first began. There have been plenty of lows, too, but the levels reached in the 1990s (prior to the Central Bank Gold Agreement) look so far away at this point.

The high price milestones are varied, representing previous highs or psychological levels. The first big price hurdle presented itself around $850 per troy ounce. This was the spot (about $1,000 dollars ago) that the metal hit in 1980 following a mix of price inflation and geopolitical tensions centered on Soviet activity in Afghanistan. By 1999, gold was down to lows in the $200s on a confluence of rumors that central banks were going to sell their gold reserves. Fast forward a few years and gold was on its way higher ahead of US actions in the Middle East. Propelled on by a renewal of global uncertainty, it wasn’t long before gold was at the precipice of fresh decade highs again.

That key level of $850 was reached and beached at the beginning of 2008. The financial meltdown lit a fire under gold that has persisted through round after round of stimulus, recovery talk, and various ups and downs. By mid-March 2008, gold topped the key round number of $1,000 per troy ounce. The trading range built on the back of uncertainty in the equity markets was unprecedented. One day in September brought a $90 per ounce rise in spot gold prices. By October, it would revisit the high-$600s before jetting off again in subsequent months.

What fuels the movements for each new record? There seems to be a bottomless basket of things that have helped drive interest in gold. Inflation fears stemming from each fresh round of Federal Reserve quantitative easing; uncertainty in other investments; parking assets to protect against the debt issues in developed nations – a litany of things that have spurred interest in gold and silver alike (although to date, gold appears to have been the larger beneficiary). The traditional items that first moved the market over $850 an ounce haven’t disappeared either. Political tensions in the Middle East and uncertainty about the likelihood of global recovery appear to add a floor every time there are pundits calling for a top in the market.


There is no shortage of analysts trying to find weakness in the gold market or looking to shout, “Bubble!” with each new price point that is penetrated. The funny thing is there is still no shortage of people who think there is room for more records in gold. A recent informal poll/survey posted on the Wall Street Journal’s website showed an underwhelming percentage of respondents thought gold had “topped out now” – only 13.6 percent as of the date I wrote this. Just over 19 percent saw $2,000 as the high target. 21.3 percent were aiming for $2,500, and the clear favorite was the simple answer to the question, “how high can gold go per troy ounce?” – “Higher,” said more than 46 percent of folks who participated. The message that even an unscientific poll on the internet shows is clear – the upside is apparently as expansive as ever. Like oil’s broad march over and above $100 per barrel, there seems to be a force that is seizing on the uncertainty gripping the average investor to help them overcome any fears or concerns with each high price point. Retracements are possible, profit taking is highly plausible, but there doesn’t seem to be a truly insurmountable price record for this market. Adding more fuel to the fire are rumors that are starting to build about possible continuing intervention from the Federal Reserve. Even though members were adamant that there would be no more bouts of quantitative easing, markets are looking at the possibility, which helps support prices further.

Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.