Beware choppy seas for gold price

Marc Ashton | Mon, 16 Nov 2009 15:12
[miningmx.com] -- The gold price continued its march into unchartered territory recording new highs amid an intra-day high of $1133.50 for December dated future in Monday trade. And yet speculators remain wary of the metal.

"It is difficult to justify taking up new long positions going into the end of the year," said Nilan Morar who heads trading at derivatives firm, Global Trader.

Morar has been advising clients that although momentum and sentiment for the yellow metal remained positive, but he is also wary of advising traders to take out further long positions going into the end of the year.

"While I wouldn't write off $1200 dollars in the not too distant future, if you have an open long position, we are suggesting rather working with a 'trailing stop loss'," said Morar in an interview with Miningmx.

A 'trailing stop loss' allows investors to limit potential losses should the gold price lose value.

The US dollar continued to trade near a 12-month low prompting investors to buy into gold as protection against the falling US currency, he said.

"With the dollar being completely friendless, gold has been the first place for refuge," stockbrokerage Barnard Jacobs Mellet (BJM) advised its clients.

The firm added that the latest rise in the metal price had not been fuelled by speculative trading activity.

It points to the net long gold activity market which is trading at around 240,000 open contracts. According to BJM this market has traded between 225,000 and 254,000 since September pointing to very little uptick in activity in this market.

South African gold shares reacted positively to the latest price movements with Harmony up 1.9% (148c), Gold Fields up 2.3% (242c) and Anglogold Ashanti up 1% (321c).

South Africa's NewGold exchange traded fund (ETF) was up 0.3% (26c) as the rand strenghtened marginally against the US dollar to R7.40.

Platinum catching up

After lagging the gold price in recent weeks, platinum has begun to catch the eye of investors.

Speculator activity in the market has been on the up, said BJM. It added that the number of net long open contracts rose by 1,000 to 20,300 – an all time high.

Platinum futures for December rose $29.3 to $1,418 per ounce. The spot price of the metal also breached $1,400/oz for the first time in 2009.

Morar attributed this rise to platinum playing some "catch-up" to gold after recent price movements.

"This is an important short term development as the metal had lagged gold bullion slightly which continues to exhibit positive technical picture," said Ernie Gruhn from stockbrokerage Imara SP Reid in a note to clients.

"The improvement in tone for the US currency has evaporated at the start of the new week and the dollar is once again within range of the crucial psychological area at 1.5000. The greenback has made three attempts at this level and has not yet been successful.

Imara SP Reid clients advised that further advances in the platinum price is "likely".

Shares in Impala Platinum rose 2.4% (400c) while Anglo Platinum shares were up 1.8% (1202c).