Expect a violent upswing in gold

Conditions are ripe for an explosive resurgence of the gold bull market.

Gold has turned up again, hovering around a six-week high of $1,350 an ounce. Chalk it up to a weaker US dollar and the postponed taper.

The US central bank is now unlikely to slow the pace of its money-printing until next year. The gradual return to economic normality has been postponed.

That's good news for an asset that thrives on bad news, while there are also "persistent microeconomic signals" in the gold market itself that could signal turbulence and higher gold prices, as John Dizard notes in the FT.

For instance, in India and China, which jointly account for around half of global gold bar and coin demand, people are willing to pay a significant premium to secure physical gold rather than paper gold such as a share in an exchange-traded fund (ETF), for example.

In Shanghai the premium is around $7 an ounce. In India, once you include import duty, people are paying $270 above the market price.

Another part of the story is tight supplies. Note, says Dizard, that the supply of 400oz bars, the only acceptable form of backing for gold-backed ETFs and the London market, has dwindled thanks to emerging-market demand.Many of the bars have been shipped east and turned into jewellery.

If demand for ETFs in the West rises again amid an increase in gold prices, they can't simply be shipped back and turned back into 400 oz bars.

That means there'd be a shortage of physical gold to back ETFs once Western demand returns, says Goldsilverworlds.com. So "a resumption of the gold bull market could result in violent price reactions to the upside".

Recommended

The outlook for Shell shares is mixed, despite bumper profits
Energy stocks

The outlook for Shell shares is mixed, despite bumper profits

With profits surging, it looks as if Shell is on a roll, but the company’s growth from here is hard to see as Rupert Hargreaves explains.
6 Feb 2023
How to invest in gold
Gold

How to invest in gold

Gold can be a good way to diversify your investments and help during difficult markets. We look at how to get started with the precious metal.
26 Jan 2023
Investors turn to gold as rally in the precious metal continues
Gold

Investors turn to gold as rally in the precious metal continues

Investors are pouring money into gold - we explain why the precious metal has become so attractive and whether you should add it your portfolio.
24 Jan 2023
Gold to hit $5,000? Is now the time to buy gold?
Gold

Gold to hit $5,000? Is now the time to buy gold?

Dominic Frisby explains why the gold price could be set up for a major rally as sentiment towards the yellow metal shifts. Is it time to buy gold?
18 Jan 2023

Most Popular

NS&I brings back one-year fixed bonds with highest rates since 2010
Personal finance

NS&I brings back one-year fixed bonds with highest rates since 2010

NS&I’s one-year fixed bonds are back on sale after being pulled off the market in 2019 - but is the rate any good?
1 Feb 2023
The best one-year fixed savings accounts - February 2023
Savings

The best one-year fixed savings accounts - February 2023

Earn almost 5% on one-year fixed savings accounts.
6 Feb 2023
Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Wholesale gas prices are on a downward trajectory, but does this mean lower energy bills later this year?
6 Feb 2023