GOLD UP-DATE November 16, 2009
Gold continues to advance and make record highs
By David Levenstein
During last week, gold hit a new historical high of $1122 per ounce even though there was not
much in the way of any new data. The week before last, the Reserve Bank of India purchased
200 tons from the International Monetary Fund (IMF), and Barrick, the world’s largest gold mining
company, unwound some of its large hedged position in gold. December crude oil moved sharply
lower due mainly to the larger-than-expected increase in weekly crude oil inventories which
increased by 1.76 million barrels compared to market expectations of 1.0 million barrels. Also,
gasoline inventories had an unexpected increase in weekly inventories.
Last week there were no massive moves in the EUR/USD, and economic data in the Eurozone
seems to be more encouraging than that in the US and the UK. The assertion made by the
president of the ECB that there's no reason to extend extraordinary measures into next year
signaled the ECB may withdraw expansionary policies earlier than the FED.
After India snapped up 200 tons of the yellow metal from the IMF, rumors began to fly around in
the market that perhaps China would be the next buyer. China is now the largest producer and
consumer of gold in the world. Yet despite the fact that they have some US$2.3 trillion in
reserves, only a very small portion (1.9%) is held in gold. So, now there is speculation that if
China should increase its gold holding to even 5% of total reserves, the implication of this could
be a much higher gold price. But, we have to wait and see. (India recently increased its holdings
to 6% when they purchased 200 metric tons from the IMF.)
Since 2001 the gold price is now up almost 450%. In the last year twelve months it is up 57%,
and this year it is up more than 25%. Central banks have become buyers and not sellers, demand
is outstripping supplies, the dollar continues to lose value, and China is emerging as a major gold
player. If you still can’t see what is happening, then I give up.
In times like this it is important to protect your wealth and the best known way to do this has been
to invest in gold. No, I am not suggesting that you plough every cent you have into precious
metals, but I am advocating that you invest a part of your investment funds into precious metals,
especially gold. But, it is important to understand how you create an appropriate gold portfolio.
First and foremost you need to accumulate physical gold. You can do this by buying bullion bars
or bullion coins. As far as I am concerned, commemorative and inaugural medallions (limited
edition medallions), do not offer the same value as bullion, and hence I do not recommend these.
And, if you come across a dealer who tries to persuade you to buy these medallions instead of
bullion, head for the hills or find another dealer. While there is value in numismatic coins, there is
a distinct difference between numismatic coins and these limited edition medallions. These
medallions are not numismatic coins. While certain numismatic coins have the potential to
appreciate substantially, this is a specialized area of investment, and you need to work with a
reputable dealer who can offer the correct advice regarding the selection of these coins. Then,
once you have built a core holding of physical gold, you can then look at the other investment
instruments such as gold shares, gold exchange traded funds, gold futures and options.
Since the middle of July 2009, the gold price has been moving steadily higher. The classic bullish
pattern of higher highs and higher lows can be seen very clearly. Technically, this market is very
strong, and while it might be due for a small correction, the next mid-term upside target remains
at US$1300. I see short-term support at $1098 and $1085 and short-term resistance at around
ABOUT THE AUTHOR
David Levenstein is a leading expert on investing in precious metals .He brings over 29 years experience in futures, equities, forex and
bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins,
gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been
published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a
premier radio business channel in Johannesburg, South Africa. He is also a regular commentator on www.kitco.com and
www.mineweb.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to
completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to
change without notice.