WSJ: Gold Keeps on Shining


·        July 19, 2011
·        By Francesca Freeman

Gold isn’t cheap. But that doesn’t mean people aren’t prepared to pay for it. Even at more than $1,600 a troy ounce, the precious metal is still proving its worth.

Last week, we asked whether an ascent to $1,600 a troy ounce would scare off all but the most fearless of speculators. As it turns out, the answer is ‘no.’

Yesterday, gold finally cracked that level, gliding through the key psychological barrier to a record high of $1,607.37/oz in the European spot market Monday, before continuing upwards and reaching a fresh record Tuesday, of $1,610.14/oz. Although prices have since paused to consolidate as buyers adjust to the higher prices, some longer-term interest in the metal appears to be sticking.

“At $1,600/oz, gold may be overextended to the upside, but the bullish trend seems to be intact,” said Mitsui analyst David Jollie. “There are a large number of people effectively buying gold as a currency, so it may be that an expensive absolute price is not necessarily a reason not to buy. While some people will see $1,600/oz as too expensive, others will see a rising price as a reason to buy today rather than tomorrow.”

This mindset is particularly evident in Europe, where spot gold has soared to fresh records in both euro and sterling terms as European buyers exchanged paper currency for the metal, viewed to be a safe bet amid persistent fears over the euro zone’s debt crisis.

Exchange-traded products are once again proving to be popular tools for investors to gain exposure to gold. According to Barclays Capital, the amount of gold held in ETPs globally is at a fresh record high of 2,170.9 metric tons.

This is despite the seasonal weakness in demand, according to Barclays Capital analyst Suki Cooper, with the Indian wedding season–traditionally a time of strong demand–not slated to start for another two months. “We expect prices to test fresh highs amid the current environment,” Ms. Cooper added.

And the relative illiquid trading volumes currently are another sign that the market isn’t getting overwhelmed by a herd-like mentality, as was seen with silver when dozens of investors piled in and pushed prices higher earlier this year.

“It is encouraging that the market is quite quiet,” said a senior industry participant. “This suggests that this isn’t just a temporary sensation. People are not walking around the office high-fiving.”


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