Gold reached hit a new all-time high in October on 6th, 7th, 8th, 9th, 12th October, and then again on 20th October when it fixed at $1,061.75/oz. Looking back at the history of the gold price since 2003, over 1,714 trading days gold hit a new high (post-2003 - the 1980 high of $850/oz would remain so until 3rd January 2008) on 178 of those days (mostly from 2002 onwards), testament to the strength of its bull run.

But many of those highs lasted just one or a few days. There were five occasions it hit a new high which would not be seen again for months - on 5th February 2003 (when it took 149 days for the high to be beaten); 1st April 2004 (141 days); 2nd December 2004 (195 days); 12th May 2006 (341 days); and 17th March 2008 (382 days). After those highs had been reached, gold fell back, at its worst by 16%, 12%, 9%, 23% and 30% respectively.

This is the kind of correction of which many analysts - including ourselves - are fearful. If this was to occur, then from the current high of $1,061.75/oz, gold would fall back to a price of between $746/oz and $966/oz. The time span for this to happen hitherto has been 44, 25, 44, 104, and 157 trading days after the peak - giving us a time somewhere between mid-December 2009 and May 2010.

Yet history never repeats itself exactly. For one thing, we don't yet know whether we have seen the peak of this current spurt higher. Gold only beat its March 2008 peak in September, and so has been setting new highs for about 25 trading days. On previous occasions when it had beaten a long-standing high, it took much longer until it topped out - 143 trading days before the 1st April 2004 peak, 165 trading days before the 12th May 2006 high and 124 trading days before 17th March 2008 peak.

Only the peak seen on 2nd December 2004 arrived quickly, arriving 29 days after the 1st April 2004 peak had finally been beaten.

Gold Outlook

There are important internal dynamics - such as weak Indian imports and even weaker central bank sales - but all the action right now is investor-led and based on larger financial flows, most importantly the suggestion that the dollar is losing its global currency status. It's premature to put much faith in that however; if the dollar regains esteem gold could get savaged, but perhaps not yet. Short-term LBMA fix $1,035/oz-$1,085/oz.

Courtesy: Fortis Metals Monthly