Friday rally sets up gold price breakout

Friday in New York the spot gold price moved sharply higher to reach its highest level since early June within shouting of the psychologically important $1,400 an ounce level.

By mid-day the yellow metal was trading not far off its highs at $1,396.80 after gaining as much $27 or just under 2% since yesterday's close.

Gold futures have now rallied more than 18% from the intra-day low of $1,182.60 an ounce on hit on June 28.

Gold's fight back from multi-year lows comes on the back of:

  • Strong physical demand from Asia and around the globe – according to a World Gold Council physical gold buying increased more than 50% in the second quarter.
  • Dithering by the US Federal Reserve over the timing of the winding down of its stimulus program – as long the the $85 billion a month in easy money continues to pour into markets it boosts gold and hurts the dollar.
  • The end of the great gold-backed ETF liquidation –  Standard Bank in its daily research note, puts it this way:

It’s perhaps worth highlighting that part of gold’s relative strength of late, and indeed its recent stability has been a lack of activity in ETF holdings. The wave of ETF liquidation seen throughout Q1 and Q2 has come to a halt since mid-August, taking an important source of selling pressure out of the market, while participants have yet to pile back in either as they wait to see how the issue of Fed tapering and indeed the general economic picture unfolds.

Friday rally sets up gold price breakout