Gold fixes sights on $1,800

[] — MINING shares in Johannesburg staged an astonishing resurgence on Wednesday morning. The general mining index was 6% higher while the Resource 40 and gold index was about 4% and 1.95% stronger respectively.

All of this is in line with the general market in the US and follows the return to equities in that country on Tuesday following a Federal Reserve announcement it would hold rates until mid-2013. According to one stockbroker’s note, the Fed’s announcement has forced investors back into riskier asset classes, such as shares.

Gold, however, is set to retain its popularity.

Goldman Sachs has raised its gold forecast again. Even before the Fed’s announcement, it was expecting US interest rates to stay lower for longer prompting a gold price forecast change to $1,860/oz for its 12-month horizon. The bank and commodity trader’s three and six month forecasts for the gold price had already been exceeded in intraday trade, an indication of just how volatile the precious metals market has become.

UBS comments that gold’s ascent to heady levels of $1,772 per ounce – in which it briefly eclipsed the price of platinum for the first time in years – was a mixture of institutional buying which was, importantly, helped by retail purchases of physical gold. Retail purchases are thought to be sticky – safe hands, in other words – and could see gold move breathlessly through $1,800/oz. In fact, such a gain was described by UBS as “inevitable’.

US Mint figures show purchases of the American Eagle coin stand at 23,000 ounces so far for August, well off the high in May of 107,000 oz, but there’s always a lag in the reporting of volumes.

And the rush to physical gold as spilled over into demand for exchange traded funds (ETFs). On Tuesday, investors added 954 million ounces of gold to their global holdings representing the largest daily increase since February 12, 2009. Since the start of August, EFT holdings have increased by 2.23 million ounces.

Said UBS: “With markets highly unsettled, now is the time when gold should be accelerating. When the dust settles, investors will look around for value and gold’s attention will moderate – but that still feels some time away. We see the outlook for gold as still very positive’.