LONDON (Commodity Online): Gold inched upwards on Tuesday trades to hover around $1255 an ounce. The yellow metal gained momentum in recent trades as the most active contract, August delivery gained 1% to $1,247.20 on the Comex in New York by 7:22 a.m., and earlier touched $1,258.70, the highest for a most active contract since July 3.
Strategists at Deutsche Bank maintained that recent downfall in gold has almost reached to its bottom.
Gold has fallen by over 30% from its peak of around $1,900 an ounce in September 2011.
"Lessons from history suggest that although gold-price losses have been extreme, the extent of the price correction today is still some way short of the percentage declines that occurred in 1980-81," said Michael Lewis and other strategists in a media note.
"However, we would classify events over 30 years as significantly different since at that time, U.S. short-term interest rates rose to 20% with real interest rates also rising rapidly."
However, future policies by the US Federal Reserve would play a key role in deciding the trend in the yellow metal. "it is possible that the major part of the gold price correction has already occurred," he said.
Notably, analysts from Citi have noted that in spite of the recent fall in the yellow metal, it may be premature to declare the end of the yellow metal.
Tom Fitzpatrick, Citi's top chartist, referred to the 1970's when a similar move was seen in gold. Referring to a news clip from an old New York Times article of August 29, 1976, he noted:
"Two years ago gold bugs ran wild as the price of gold rose nearly six times. But since cresting two years ago it has steadily declined, almost by half, putting the gold bugs in flight. The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels.
The rout says a lot about consumer confidence in the worldwide recovery. The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold's allure.
Although the American economy has reduced its rapid rate of recovery, it is still on a firm expansionary course. The fear that dominated two years ago has largely vanished, replaced by a recovery that has turned the gold speculators' dreams into a nightmare."
According to Fitzpatrick: In 1976 the Gold correction ended in August and the Equity market began a deep correction in September (27% over 18 months). During that period Gold rallied by about 78% and over the 1976-1980 period it multiplied in value by a factor of 8 from just over $100 to over $800. The final part of that rally saw Gold rise from about $470 to $850 over about 4 weeks on the back of the USSR invasion of Afghanistan. Even without that move it still multiplied by about 4.5 times in just over 3 years.
So, just because gold is down, it doesn't mean it's out.
courtesy of commodityonline.com
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