How High Will the Gold Market Go?

Published by Frank on September 27, 2010

Gold has surged to an all-time high of $1,299.80 per troy ounce and gained 1.3% on the week. The recent US Federal Open Market Committee meeting served as a catalyst for higher gold prices as the precious metal came under heavy demand from traders seeking protection from a deteriorating US dollar.

The Federal Reserve’s acknowledgment that inflation is ‘somewhat below’ levels deemed consistent with their mandate was taken as a hint that further Quantitative Easing (QE) was on the cards.

If you were day trading you probably would have seen that these comments made the US dollar plunge. As confidence in paper based currency begins to fade, demand for gold will increase as investors seek an asset that will retain its value during uncertain times.

Gold could also see support from other areas, according to David Choe of IGIndex, “The additional uncertainty surrounding the US mid-term elections is likely to support gold prices in the short-term. Not only that but physical demand for the yellow metal is traditionally high at this time of year due to festive activities in India.

“It is difficult to see what may break the metal’s remarkable momentum in the near term. The possibility of a prolonged stock market rally and greater clarity in the world economic recovery could see traders lock in profits and seek higher yielding assets.

So where next for the gold market? Simon Denham of Financial Spread thinks it’s little more difficult to call, “Gold remains at highs but few investors are willing to take any risks at current levels. Sellers of gold have been burnt too much and even the natural buyers are wary at these high prices”.

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