Friday, July 23, 2010

Superior Gold Group - Gold set to rise again as fundamentals reassert themselves

The price of gold may be set to stage another rise, Bloomberg News and various analysts report, now that the yellow metal has recovered from an eight-week low. Currently, physical gold trades at a five to six percent discount to the record $1,266.50 per troy ounce level that it set back in June.

"There’s been an upturn in physical buying, in Asia particularly. People see it is a cheap price. There’s been a bit of an improvement in risk appetite and gold can benefit on the back of portfolio flows," Dan Smith of Standard Chartered in London told Bloomberg News.

Long-time traders like Jim Rogers are advocating a commodities-heavy strategy in the coming years, as rapidly developing nations like China and India consume more and more raw materials to fuel their economies. China recently surpassed the U.S. as the world's greatest consumer of energy - although not yet of oil - and the relatively low per capital income and consumption of the Chinese people means that those figures could continue booming.

China has also been a steady investor in gold, with both the private and the public sector picking up stores of physical gold when the price dips temporarily. In the first half of 2010, the Shanghai Gold Exchange saw the equivalent of 3,174.5 metric tons of gold traded, a 59 percent jump from the same period in 2009.

It's not just private investors, either - the People's Bank of China has accumulated over 1,000 tons of gold, making it one of the world's biggest holders. The Chinese government is nervous about the possible effects of inflation on its massive dollar reserves, but it can't dump too many dollars at once without spooking the currency markets.

A big test for the global economy - and for the outlook on dealer gold - will come on Friday when European regulators announce the results of the "stress tests" they have been conducting on Europe's biggest banks.

One of the key questions is how many banks would be affected by a major sovereign default - such as a Greek or Portuguese bankruptcy - and how badly their holdings would fare.

If the banks look too weak, they'll be told to raise more capital.

Many, however, are skeptical and fear that the tests are not rigorous enough. In that case, become overconfident. Alternatively, investors could lose their remaining confidence in the eurozone and jump ship, which would precipitate exactly the crisis regulators hope to avoid.