Donna Block
Gold’s fortunes have risen like a phoenix out of the ashes as the price of the precious metal soared over $330 per ounce this week – a price that hasn’t been seen for two years.
Bullion prices have risen dramatically since last week after 15 European central banks pledged to limit annual gold sales to 400 tonnes per year.
But gold prices are also getting a boost from word that European central banks will also restrict gold lending. This practice of lending gold has helped fuel a recent surge in short sales – selling the metal in the hope of a price decline and then buying it at a later point in time for less than the sale price. The difference was profit.
The price of leasing gold has risen dramatically as central banks seized the opportunity to make money from an asset that would otherwise just sit in a bank vault and on the balance sheets. But lease prices have in some cases reduced or reversed the profit margin dealers were making.
Analysts are saying that the most recent surge in the gold price was the result of a major short squeeze – hedge funds, speculators and mining houses scrambling to buy the metal before their losses overtook them and those short positions became difficult to roll over if gold lending by central banks dried up.
European dealers says they expect gold will probably go higher. But previous gold rallies have fizzled in the past decade, and some analysts, although cautious in their comments, remain unconvinced by this one and suggest the long-term impact on gold prices may not be so great.
“We have no specific target on the upside but we remain confident gold will keep moving toward $350,” one Swiss dealer said. Most local analysts agree that the gold price will be volatile in the coming months but could stabilise at $330 per ounce by the end of next year.
Whatever is really driving the price of bullion, one columnist in New York has offered his own point of view. Alan Abelson of Barron’s, a weekly financial magazine, argues that the price of gold has sky-rocketed because of “the fear factor”. But not just any old fear. It seems that investors didn’t give a toss about the precious metal during the Asian contagion, the financial debacles in Russia and Brazil, or even during the possible impeachment trial in the United States.
So what are they so afraid of? According to Abelson, Beatty and Trump. As in Warren Beatty, handsome actor, and Donald Trump, property developer and casino operator. It seems that these two stalwart Americans are threatening to run for USpresident. Neither claims to have any experience in the political arena, but as Abelson points out they “both boast considerable success in other pursuits [mostly the opposite sex].
“In other words, investors, to their credit, perceived this dire threat to the future of the republic and hurried to protect themselves by laying in a store of gold. Should Trump or Beatty actually throw his hat in the ring, the next price point for bullion is $500 an ounce. If either were to get elected, $1 000 is in the bag.”