Economy, Business And Markets

Watch Gold at $1,180 oz.

Watch Gold at $1,180 oz.
Watch Gold at $1,180 oz.

Gold slightly fell in Tehran’s market on Monday despite a rise in the metal’s prices in Asian markets.

The full coin of Bahar Azadi was sold at 9,385,000 rials at 0400 PM local time on Monday, down 0.07 percent compared to Sunday, while the Emami gold coin was traded at 9,380,000 rials, down 0.11 percent.

The half gold coin reached 4,750,000 rials, down 0.21 percent and the quarter gold coin remained unchanged at 2,720,000 rials.

The precious metal recovered from early losses on Monday after Hong Kong pro-democracy supporters clashed with police, keeping Asian stocks on edge and boosting bullion’s appeal as a safe haven, though the strength in the US dollar has kept the metal’s gains in check, Reuters reported.

In afternoon trade gold was up 0.2 percent at $1217.74 an ounce after coming under pressure on Friday as the greenback posted its 11th consecutive weekly gain against a basket of major currencies, following the release of robust US GDP data.

Reuters quoted HSBC Australia and New Zealand chief economist Paul Bloxham as saying that the recovering US currency had been a key weight on the gold price.

Experts forecast that gold may be lingering at nine-month lows but demand for the precious metal is growing among the super rich.

The world’s wealthy are buying record numbers of gold bars, similar to the ones held in reserve banks across the globe and featured in the 1969 British caper film, The Italian Job, according to the report.

An Iranian gold expert with the MKS (Switzerland) SA has forecast that the metal’s price has a critical turning point which he believes is $1,180 oz.

“If the price per ounce goes below $1,200, the probability of experiencing the $1,180 further increases. However, if prices maintain the downward trend and go below that level, we can still expect further reduction of prices. Thus, passing through this critical point, though difficult, is determinant,” Nabavi said in an interview with the Persian-language Tejarat-e Farda (Tomorrow’s Trade) weekly in its September 28 issue.

The following is the interview with Geneva-based head of Trading and Physical Sales at MKS.  

 During the first six months of 2014, fluctuations in the yellow metal prices seemed to be restricted due to conflicting economic and political information. Besides, if the recent decision by the Federal Open Market Committee over increasing interest rates come into effect, the trading range will move closer to $1,200 oz, level. So, do you think the downward trend will remain?

Well, I suppose the key price to watch is $1,180 oz, as in the very short periods of time when the market comes to experience this price point, the prices rebound from here and tend to increase again. However, this time it can be totally different. Anyway I believe the market will still reach this price point. Furthermore, it should be noted that the dollar has stayed strong and I personally believe the revival of the US economy will certainly affect gold prices. We saw that even rising geopolitical problems in the Middle East and Eastern Europe could hardly influence the price point at $1,325 oz, indicating that even intensified political tensions have not contributed to increased gold prices. So, we can expect that the more the gold price decreases, the more sale pressure would be exerted to the market. Although $1,200 oz is a relatively important price point, 1,180 is even more critical, because if the price per ounce goes below 1,200 oz, the probability of experiencing the $1,180 oz further increases. However, if prices maintain the downward trend and go below that level, we can still expect further reduction of prices. Thus, passing through this critical point, though difficult, is determinant.

 Based on your analysis, can we conclude that the market will not experience higher price levels in the near future?

We might not expect significantly increasing trends in the short-run, while it is potentially possible that much higher price levels would be reached in the long run. We can even expect price points higher than $1,900 oz, which of course requires that long term traders and investors come out of their shell, and cope with their fear to enter the market. Once the prices decrease, it could be a favorable time for long-term investors to enter the market.

Yet it seems that there are too many prerequisites for prices to increase, reducing the hope for the ones interested in gold investment. It seems that in the middle-term we should closely consider the gold price support level, i.e. primary and secondary levels of $1,200 and $1,800 oz. What will happen if the price decreases lower than $1,180 oz?

Actually, once the prices fall below this point, the collapse in prices is likely to be intensified. I suppose it should not be surprising then even if the prices reach $1,000 oz. But, considering the present geopolitical problems all over the world, I personally do not think that gold will go through such a crash, yet I still do not believe it is impossible. The gold market is not faced with lack of liquidity, but different factors effect where this liquidity is focused.

 Will the strengthening dollar and the US Federal Reserve gradual plan to increase interest rates in the United Stated remain the only driving forces behind the gold market, or is it possible that other factors will appear in the market and affect it in the same or the opposite direction to the other two factors?

I believe the rise in interest rates will not happen so quickly. The dollar has stayed strong though, and apart from the status of the US economy, other factors further help strengthen the dollar as well. The economic and financial crises in the Euro zone, keep the euro under pressure, which in turn leads to the gain of the dollar. Also, as the political tensions in the world are intensified, people tend to buy more dollars as a safe saving, which is the reason why the prices for most precious metals are decreasing worldwide. So, while it is true that the US Federal Reserve policies regarding interest rates might influence the market, what we are sure of is the effect of a strengthened dollar.

 What about geopolitical challenges? Are financial markets (including the gold market) used to the tensions and stopped reacting sensitively to them?

I do not think the market has got used to these tensions and problems. The most important issue is that the investors who previously tended to invest in the gold market are not actively participating in the market now, though they are carefully watching the market. Actually these investors are looking to see when it is the appropriate time to enter the market. These investors own a large amount of liquidity. If they do not find another profitable market, they might return to the gold markets and make profits of the current trends. As it has repeatedly said before, the market is influenced by the dollar, and is pressured by the dollar appreciation. If the long-term investors of the gold market change their viewpoint regarding the gold markets, the gold price support level will also undergo changes as a result. For now I anticipate that the ounce price can decrease again by up to #30, and it will actually reach below $1,200 oz.

 When actors and observers of financial markets assess that price levels would be low, some market players start buying gold in the short term as a hedge against economical uncertainties. Do you think if the price reduces again by $30, this hedging behavior will be capable of further increasing gold prices?

I do not believe this is the case. I suppose short-term hedging will not take place in the market. Even if it does, it can be examined on a daily basis. Daily short term hedging affects daily trends, and if it remains limited, it will restrict price fluctuations. Thus, I do not believe any short- or medium-term hedging will happen.