Gold: Volatility & New Record Highs
By Adrian Ash
March 6, 2008
Miss your chance to buy gold at a $30 discount
last night...?
WELL THAT CAME and went pretty quick!
Gold
Prices dumped almost $30 per ounce late Tuesday, only to pick them right
back up again by Wednesday's close in London, before racing above $990 per ounce
as New York wound down the day by itself.
What in the hell is going on here? We're not given to making
forecasts or proffering investment advice here at BullionVault.
We're busy enough as it is simply watching the Gold
Market and trying to make sense of it all, as well as offering private
investors who share our current unease a safe, simple and cost-efficient route
into direct gold ownership.
Beyond that, to our mind, how you make or lose money in today's
financial markets is entirely your own concern – and it's a serious concern,
too. The lack of investor scrutiny at Enron, Refco and Northern Rock prove that.
But three observations on the current state of the Gold
Market stand out today. Not least with the Federal Reserve on track to lop
another 75 basis points off the returns paid to Dollar holders when it meets on
March 18th.
Whether you currently own gold or not, just consider:
#1. How Gold Got Here
The uptrend in world Gold
Prices starting in July 1999 clearly entered a new phase last August. This
distinct new stage coincided to the very day with Ben Bernanke's first cut to US
interest rates in response to the global banking crisis – the 0.5% cut to the
discount rate announced on Aug. 17th.
#2. The Need for a Thick Pencil
Any technical analyst armed with a high-low-close chart of gold (as above) would
point out the clear "trading channel" that's developed since Nov.
2007, about half-way through the Fed-inspired move. Use a thick enough pencil
– the stock-in-trade of decent chartists, of course – and this week's sharp
drop began right on the upper trendline at the latest all-time high of $989.55
per ounce
#3. Volatility's Rising
Both in terms of Dollar-value and percentage swings, the price of Gold
has become horribly volatile since the start of this year. Indeed, since the
start of last month it's averaged a near 2.1% move across every two sessions.
You can see the gap widening violently between the highs and lows
marked on our chart. Prior to last month, the average two-day swing of the
previous 12 months was nearer just 1.6%.
So new gold buyers today, whether leveraged or not, are set for
truly stomach-churning volatility at today's current nose-bleed prices. Anyone
making the jump now – and defying the siren voices of many professional
pundits – may not make any money for sure.
But having the front to buy now, nearly 50% higher inside six
months, is a feat requiring almost as big a pig-head as Buying
Gold at the all-time bottom of eight years ago.
Your certain reward? Sudden, sharp moves that come and go almost as
fast as this week's $30 drop between two new all-time records.