The Really Useful Gold Thread

Gold romps into 2004

Posted: 2004/01/02 Mineweb 1997-2004

Gold has started 2004 trading around its strongest levels in seven years, but traders have warned that gold bugs will have to wait until next week for the first real confirmation of the metal’s strength.

Bullion had a strong year in 2003, surprising many market players by running up from $345.30/oz on January 2 to a year high of $417.25/oz on December 31 – its highest level since February 7 1996, when it touched $417.70/oz.

Traders were actually disappointed that gold didn’t trade even higher this week – they said it had looked poised for major gains after breaching the $415/oz level, and funds were expected to push for a close over the $420/oz level to end the year higher.

A bullion trader at major South African investment bank said that gold had struggled around the $416/oz level, and had not convinced the market of its robustness.

But he said that the current price action was not indicative of what the first few weeks of 2004 held for the metal. “Next week will be the test, a lot of traders will be back at work on Monday, and the trade for the last few weeks has been too thin for us to say if this is real strength or not,” he said.

The trader said the massive find interest in gold had not been wound up over the holidays as many had expected. He said there is anecdotal evidence to suggest that fund allocations for 2004 will see institutional investors maintaining large positions in all commodities, as the ongoing uncertainty in other asset classes continues. “They can still take gold higher, there is a lot of fund business coming into the market,” he said.

He said that if gold broke through the $418.25 level, it should head for $421/oz, and then look at the key 425/oz target.

Gold’s gains came as the dollar continued to struggle against the single currency – the greenback fell to a record low of $1.25 to the euro earlier this week, after starting the year at $1.04. “The other driver is the amazingly strong euro, the dollar is taking a real pounding,” the trader said.

Traders predicted last week that a breach of the key $1.25 level would see gold soaring, but the metal has ticked up gradually, despite thin December trading conditions which can cause wild swings in prices in either direction.