The most exciting recent action in commodities has been the soaring gold bullion price. Just a few weeks ago, we said that it was only the level of $450/oz that stood between the current price and our intermediate target of $500/oz – we have said that we expect $500/oz to be hit, probably later this year. Lo and behold – crash, bang, wallop – $450/oz has been swept away and before we can blink the price has been as high as $475/oz. Halfway between where we were a few months ago ago and $500/oz.
Not for the first time this year, gold has prospered in spite of dollar strength. The effect is that gold is now a major investment opportunity in most currencies. The audience for this investment opportunity is now global.
Demand for gold outstrips supply, helped by investor interest, a very significant increase in jewellery demand in India and China, and an end to this year’s Central Bank selling. They have sold their quota for the current year and the Argentine Central Bank is even saying they might purchase gold.
Not surprisingly, gold mining shares have profited very considerably. The Merrill Lynch Gold & General fund is at an all-time high and will, we expect, over the next year or so, provide the most outstanding investment that the market can today offer.
It has been calculated that since the Second World War, an ounce of gold has on average bought 15 barrels of oil. Currently, it buys only seven barrels of oil. If there is any merit to this long-term ratio, either oil has got to halve in price or gold has to double in price. We don’t expect oil to halve in price!
Our long-term target for gold is $1,000/oz, but first $500/oz is a most important long-term technical resistance level. Not only is it a lovely round number, but it is also the level at which the gold price has twice failed since gold made its all-time high in 1980.
By R H Asset Management, in the Onassis newsletter, a fortnightly newsletter that gives insight into the investment markets For more from RHAM, visit https://www.rhasset.co.uk/