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Gold Bubble Is Around The Corner

gold bars close 2000 Gold Bubble Is Around The Corner The price of gold hit a fresh all time high of $1,900 an ounce on Tuesday as investors continued to fret over the sovereign debt crisis in the euro zone and its impact on the global banking industry.

Having risen by a third since the beginning of 2011 and nearly fivefold since 2004, one analyst believes the precious metal is now in bubble territory and an “absurdity”.

“Gold is not money and has no investment yield and in fact incurs carrying/storage costs. With the 10 year US treasury rate at 2 percent and storage cost of 1-1.5 percent this implies an annual opportunity cost of 3-3.5 percent,” said John Wadle, the head of regional banks research at Mirae Asset in Hong Kong in a research note sent to CNBC on Tuesday.

With global gold reserves now worth over $9 trillion and the 30 stocks that make up the Dow Jones Industrial Index worth nearly a third of that level combined, Wadle believes gold is now a “bubble compared to US blue chip stocks”.

“For those pundits that believe gold will keep rising to $2,500 an ounce, let’s do some simple math: the current reservoir would be valued at $12 trillion and the next 20 years of production would produce gold worth $3.8 trillion, bringing the total value to $15.8 trillion” said Wadle.

“Even assuming earnings for the Dow stocks rise by only 2 percent (Japanese deflation scenario) over the next 20 years and the market only trades on a P/E of 10x an investor would still make 130 percent over this period,” he said.

To match this return gold would need to top $4,400 an ounce according to Wadle.

“This is absurd,” he said.

Gold Climbs To Record Above $1,910 On Growth Fears

Spot gold soared to an all-time high above $1,910 on Tuesday, scoring a record top for a fourth consecutive session, as persistent worries about global economic growth burnished bullion’s safe-haven appeal.

Gold Malaysia Gold Climbs To Record Above $1,910 On Growth Fears

The precious metal was headed for a seventh straight session of rise and a monthly gain of more than 16 percent, highest since September 1999.

Spot gold gained 0.8 percent to strike an unprecedented $1,911.46 an ounce, before easing to trade nearly flat at $1,895.99 by 0256 GMT.

U.S. gold rose 1.4 percent to a record high of $1,917.90, and retraced to $1,899.60.

Investors are waiting for flash purchasing managers’ index (PMI) data for Germany, France and the euro zone later in the day, with a weak number likely to exacerbate fears about bailing out the bloc’s indebted peripheral states.

“We are not hearing much good news out of Europe or the United States,” said Darren Heathcote, head of trading at Investec Australia.

“The picture looks pretty bleak in the short term… For the time being investors are happy looking at gold as safe haven in these troubled times, and will continue to do so until we see something positive and sustainable.”

On the chart, gold has been in the overbought territory since early August, with the Relative Strength Index hovering about 83.

Technical analysis suggested gold could pull back to $1,860 during the day, said Reuters market analyst Wang Tao.

SGE RAISES MARGINS, TRADING LIMITS

The Shanghai Gold Exchanges said it will raise trading margins on three of its gold spot deferred contracts to 12 percent from 11 percent starting August 26, and widen the daily trading limits to 9 percent from 7 percent.

Shanghai gold T+D contract fell less than 2 yuan from a high of 391.85 yuan per gram at the news, but has since stabilized around 391 yuan, or $1,900.02 an ounce.

Traders are eyeing potential hikes in U.S. gold futures margins. They were last raised on August 11 by 22 percent, triggering a correction in gold prices.

But concerns about the world’s economic growth soon offset the impact of the margin hike, and gold embarked on another leg of record-setting rally just a week later.

“Everyone says that gold has been rising too fast, beware, beware, beware!” said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong. “But there is no sign of gold prices turning to point south.”

Leung said scrap selling was minimal and sellers are waiting for higher prices, while investors continued to show buying interest.

Market participants are eyeing an annual central bank conference in Jackson Hole, Wyoming, where the U.S. Federal Reserve Chairman Ben Bernanke is scheduled to speak on Friday.

Spot silver rose to $44.14, its strongest since early May, tracking gold’s strength. It was later trading at $43.18.

Spot platinum hit a three-year high at $1,912 an ounce, before easing to $1,898.99.

In other news, China’s flash Purchasing Managers’ Index, designed to preview the country’s factory output before official data, edged up to 49.8 in August, from July’s final reading of 49.3. That leaves the index a touch under the 50-point mark that demarcates expansion from contraction in activity. HSBC publishes its final China PMI index for August on Sept 1.

(Editing by Himani Sarkar)

GOLD Set To Recapture The 1,133.18/1,141.88 Levels

While the immediate challenge is for the commodity to break and hold above the

1,133.18 level, its Mar 17’10 high and the 1,144.88 level, its Mar. 04 high, we think

that as long as Gold maintains above the 1,088.20 level and its long term rising

trendline currently located at the 1,075.45 level, a violation of those levels is likely.

In such a case, the 1,161.88 level, its Feb. 11 high will be targeted ahead of its

psychological level sited at 1,200 and then its 2009 high at 1.226.33. Its daily and

weekly studies are bullish and pointing higher supporting this view. On any

pullbacks from its current price levels, the 1,098.23 level, its Mar 12’10 low will be

targeted with a break of there setting the stage for further downside pressure

towards the 1,088.20 level and its longer

term rising trendline at 1,075.45. On the whole, having maintained its recovery tone set from the 1,098.23 level, further

upside risk now eyes the 1,133.18/1,141.88 levels and beyond.

Technical Summary: Set To Return To The 1,141.88 Level

GOLD continues to retain its bullish bias despite its Wednesday

weakness, suggesting a retarget of the 1, 133.18 and 1,141.88 levels is

likely to be seen. On any pullbacks, the 1,098.23 level will come in as

support. Though trading slightly below its Wednesday high at 83.31,

CRUDE OIL continues to maintain its bullish outlook as it looks to

retarget the 83.31 level and head further higher towards the 83.93

level and then the 85.00 level. The 17.62 level is now beckoning as

SILVER continues to maintain its bullish tone set from its 14.63 level.

Beyond the 17.62 level will create scope for additional up move towards the 18.87 level and then the 19.45 level.

WHEAT’s Wednesday strength is currently being met with a reversal suggesting more downside pressure could shape

up towards the 475 level and possibly lower. CORN is also seen giving back most of its Wednesday gains in today’s

trading increasing risk of a decline towards the 361 level and then the 340 level.

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