3rd Week Without CB Gold Sales - Expecting Correction After September 26

Wednesday, September 14, 2005

The member central banks of the Eurosystem have been absent from the physical gold market for the third week in a row after dumping their annual 500 tons of bullion by the end of August, the latest weekly consolidated financial statement of the ECB shows. Gold and gold receivables were unchanged at 137.829 billion Euros.

Their absence from the market can be clearly seen on the chart. Gold rose from $430 to $450 an ounce since then. The new central bank gold sales agreement will come into effect on September 26. Expect a good dose of bullion entering the market from this date onwards that could drive the gold price down to the $42x-level before it will resume its primary - and in my opinion unstoppable - uptrend. The major driving force is the continuing strong physical demand in the Middle East and new strength in the Indian jewellery market as the main season for weddings is just about to begin next month and will last until the end of the year.
It is also to be noted that gold gains a lot of glimmer for Euro thinkers as the price rise is accompanied by renewed strength in the dollar. While the dollar gained again close to three percent, gold has corrected less than one percent at this moment.
At the heydays of gold around 1980 asset managers used to recommend that investors hold 5 to 10 percent of their savings in bullion. It can be safely assumed that the current share of gold in private investors portfolios is less than one percent. Give or take a few more crises on the globe (Iraq, Iran, inflation, inequality) and imagine what will happen to the gold price if the current portfolio share rises to 2 percent.


Wikinvest Wire