On September 6, 2011, gold price reached an all-time high of $1921.50. At the time, bullish traders believed the precious metal could power even higher. This was the culmination of the then current gold rally and it occurred nearly three years after the official start of the 2008 financial crisis.
Since the beginning of 2016, on the back of renewed global economic recession fears and falling financial markets, gold has become once again a preferred safe-heaven option for investors and traders. As it usually takes time for economic crises to get resolved because numerous measures must be implemented by governments and financial authorities over a prolonged period of time, one can expect that the current scenario will persist over months, if not years.
This is plenty of time that may actually allow gold prices to advance far further than the current trading ranges in the mid- to long-term. Naturally, on the way up occasional corrections will take place driven by seasonal peaks and dips, or some extreme news or events.
Last Friday, gold prices eased after soaring 5 percent the previous day, pressured by profit-taking after the biggest rally in more than six years, but the metal was still set for its best week in four years. Spot gold has risen 5.5 percent in the week, on track for the fourth straight week higher and the biggest weekly gain since October 2011. On Thursday, it surged 5.3 percent to a one-year high at US$1,260.60.
US gold futures for April delivery settled at US$1,239.40 an ounce but were on track to rise 7.1 percent this week, the sharpest increase since December 2008.
Traders are catching their breath and re-evaluating what to do at this stage, but frankly, there has been no major change in the current doom and gloom scenario. So, there is really no reason for them to pull back from lucrative trades. Before all, traders gamble across markets to make profits.
From a psychological point of view, having once reached $1921.50, the gold price has a potential to increase to that level again in a prolonged rally.
So far, gold bulls are having a great month as the dollar price of the yellow metal has recently hit highs not seen since last year. Gold is having the best run in 150 years.
On the contrarian side, according to analysis by Deutsche Bank strategist Jim Reid, gold has never been more expensive, when priced in terms of oil. “We find that the gold price has just hit an all time high at around 44 times the price of oil,” Reid writes in a Thursday note to clients. “The previous high of 41 in 1892 has just been exceeded. For perspective the ratio was at 6.6 in June of 2008 and only 12 in May of 2014. The long term average is 15.5.” Reid looked at data on gold and oil prices going all the way back to 1861, making the current record high truly remarkable.
Gold has never been more expensive when priced in terms of oil, one may say. But nowadays the world is oversupplied with oil that is further depreciated by the availability of alternative energy sources. On the other hand, gold supply is limited and gold production has reached its peak in the fourth quarter of 2015, according to major precious metals industry sourced.
In addition, with uncertainty over the path of global growth, and investors fearing the US Federal Reserve will have to retreat on its plans on raising interest rates, investors have few good options for storing their excess cash. With government bonds in many cases boasting a negative yield after inflation, yieldless gold doesn’t seem like such a bad option.