By Kishori Krishnan
Some analysts insist: gold is clearly overbought. For almost ten years - from 1995 to 2005 - gold has been trading between $250 and $420 per troy ounce. The rally began only in 2005.
Moreover, the subsequent oil rally ended as the financial crisis reached its apogee in September 2008. The gold bubble lived through that period, falling to is local minimum of $680 in October, 08.
Even Kitco analyst Jon Nadler has repeatedly said gold is setting record prices amid “some of the poorest fundamentals I’ve seen in the market for a long time.”
Nadler has been top-calling gold for years. He prefers to view gold as a momentum-driven commodity like any other, as opposed to a global currency substitute that is not consumed like a commodity.
He suspects the recent rise has been driven by large hedge funds and institutional investors making momentum-driven trades. As for fears of financial collapse, “The sky did actually fall last year — and it was good for $1,035 gold,” says Nadler. “But that’s about where the worst ends.”
So the short-term outlook is not promising.
Obstacle course The speculators who are buying the metal can be divided into two camps, according to Adam Klopfenstein, senior market strategist with futures broker Lind-Waldock. The first are those who think the economy is recovering, so they are seeking riskier assets such as gold. The second are those who are buying gold for its more traditional role as a haven investment, because they believe the rally in stocks will collapse.
Perhaps the greatest obstacle that could short circuit the rally in gold in the short term to intermediate picture would be a US dollar (USD) rally, insist some experts.
While the USD is overdue for a short term rally, other analysts maintain the financial markets could soon offer something else for investors to get in. And that investors would soon have better ways to multiply their funds than sitting on piles of gold.
Mark Davis, writing for BNW News Wire, makes the case for limited gold supply downstream too. An even more pronounced downtrend can be seen in North America. This is where output has dropped over the last decade from 17.06 million ounces in 1998 to 10.59 million ounces in 2008.
Given all these circumstances, there is only one way ahead - down.
Courtesy: www.goldinvestingnews.com
