Is a Gold breakout above $1600 and Silver $28 sustainable this time?

Gold breakout above $1600, silver above $28 – is it sustainable this time around?

Gold and silver have both moved back above significant resistance levels over the past few days, but it is still probably down to pronouncements by the U.S. Fed as to where prices will go from here.

Author: Lawrence Williams
Posted: Wednesday , 04 Jul 2012

LONDON (Mineweb) – This is now the third time in the past two months that the gold price has made a significant breakout above $1600 and the fourth time silver has made it back above $28- will it be third time lucky for gold and these levels held this time with gold in particular then poised for another relatively strong northern summer trading period – perhaps regaining $1700 and higher?

It is probably a fool’s game to try and predict short term movement in precious metals prices – particularly in the much more volatile silver sector where the small market size makes it particularly prone to manipulation by vested interests up or down. But with gold there does certainly seem to be resistance to downside falls below $1550 and an underlying propensity to reach higher levels again. It is notable, for example, how well investment in the top SPDR gold ETF has held up through a disappointing period for the yellow metal which is a strong indication that the big North American money is looking more and more for a rise in price in the months ahead. Indeed investment also appears to have been pouring in to some of the other significant gold ETFs too, notably in Europe, as those increasingly worried about the European financial sector move their capital into traditional safe havens.

Arguably the only thing which seems to have kept the gold and silver markets depressed is the apparent underlying strength of the US dollar which, for the past few months at least has appeared to be the ultimate safe haven investment. With gold – and other commodities – priced in dollars, dollar strength can be viewed as weakness in the metal price, even though price levels may be maintained in other currencies.

But there is continuing strong speculation that the U.S. Fed is going to have to put more monetary stimulus into the U.S. economy to try and avoid a return to recession (which may already be the case if one follows some alternative U.S. economic analyses other than those put out by the government) and a boost to the very disappointing employment figures. Each time a Fed statement has failed to confirm more monetary easing the gold price has been knocked back, only to climb back up again. This could yet happen again – and again – but the hard money is on more easing eventually at which time gold, and silver hanging on its coat tails, should see a sustained upwards correction.

While all eyes may be on the U.S. , Europe is already seeing more Quantitative Easing expanding monetary supply in this key area and the sovereign debt situation here looking to run and run and prospective bailout funds still insignificant in relation to Spain and Italy’s huge debts alone.

China is also expected to add more stimulus to its massive economy, where growth is still slipping, but one wonders if the Chinese downturn may adversely affect the huge surge in gold investment by the Chinese people, which has been a key driver of the global gold market in the past few years.

But overall the path of the gold price ahead looks like it will largely depend on the position of the U.S. Fed in the weeks and months ahead. A confirmation of significantly more money being ploughed into the U.S. economy could open the gold and silver floodgates, but continuation of the non-committal statements emanating from Ben Bernanke and the FOMC could see prices knocked back yet again, despite all the positive data for precious metals emanating virtually everywhere else in the world.

As the U.S. financial community repairs to the Hamptons in the northern summer months we may see less volatility. However the next FOMC meeting is scheduled for the end of this month and the following one in mid-September and the short term path of the gold price will likely be determined by what emanates from these.

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