The yellow metal

No two bull markets are ever the same and gold price is no exception. The yellow metal has traded range bound for most of 2012 from $1,525 to $1,795 per ounce.

Nik Kalsi and Phil Carr, founders of The Gold & Silver Club and professional commodities traders, provide their analysis on 2012 and outlook for gold price in 2013.

Year In Review: Top Gold Price Headlines of 2012?

By Nik Kalsi and Phil Carr, Traders and Analysts for The Gold & Silver Club

Gold price gained 11.1 per cent in January rally from a low of $1,525 to $1,740: The primary catalyst for gold move to the upside was driven by a dovish tone emanating from the Federal Open Market Committee (FOMC) meeting.  The Federal Reserve chose to extend the timeframe for its zero-interest rate policy to late-2014 from mid-2013.  In addition, it introduced new language in the FOMC statement by saying that it intends to maintain a “highly accommodative” monetary policy stance for the foreseeable future.

Central Banks around the world bought a total of 351.8 tonnes of gold (11.3 million ounces) in the first nine months of 2012, up 2% from a year ago:

  • The South Korean central bank added 14 tonnes (approximately 450,000 troy ounces) of gold in November, and now holds six times more than back in June of 2011.
  • Brazil bought 18.9 tonnes (607,650 ounces) in September and October alone. It will likely buy more, since gold still accounts for only 0.8% of its reserves.
  • Paraguay bought 7.5 tonnes (241,130 ounces) in July.
  • Turkey imported 4.2 tonnes (135,000 ounces) of gold in November. It has bought 117.2 tonnes (3.7 million ounces) so far this year, almost double last year’s purchases.
  • Argentina added 7 tonnes last year (225,000 ounces), and Colombia 2.3 tonnes (almost 74,000 ounces).

Federal Reserve launches QE3: On 13 September 2012, US Federal Reserve Chairman Ben Bernanke ended weeks of speculation about the prospect of further monetary stimulus for the United States economy by launching a third round of quantitative easing (QE3).

The market’s reaction was swift and overwhelmingly positive. Gold rocketed to a seven-month high of $1,775 an ounce within minutes of the announcement.

Where is gold likely to end the year?

As the trading year winds down, we were not seeing a lot of activity up until the last few days triggered by uncertainty in the U.S. budget talks. Gold fell almost 2 percent on this week to its lowest price since August, hit by heavy technical selling and growing hopes that U.S. legislators are closer to reaching a deal that would avert a fiscal crisis due on 1st January 2013.

This week gold price hit $1,660 to trade at a 3 1/2 month low since August 31. Based on our analysis, further declines appear to be limited for now as gold price is rebounding off its 200-day moving average.

The on-going fiscal cliff debate is likely to remain the markets focus up until the end of the year and will be the backbone for the dollar and gold prices. We predict gold price will end 2012 within the range of $1670 to $1680 an ounce.

What’s our outlook for gold in 2013?

Looking at things from a technical perspective – In the short-term if the uncertainty surrounding the fiscal cliff continues to have a negative effect on gold price then we will be paying close attention to $1660 level, which is currently supported by the 200-day moving average. If we break to the downside from the 6 week low of $1,660 then sell stops will likely be triggered and the next technical support level will be $1,626.

A break below this level could see prices re-visit $1,588. Should the downward pressure carry-on during the first quarter of 2013, then $1,520 will be a critical level of support which has not breached in 2012.

On the flipside if gold continues to be supported at $1,660 the next key price action level we will be paying close attention to will be, $1,674, which provided key support during Novembers NFP announcement. The next critical level of support beyond that will be $1,688. Once gold price breaks past $1,688, we expect a recovery rally with very little technical resistance until we hit $1,700.

In the long-term (6-12 months) we are bullish on gold and believe price will resume to the upside once we break $1,700 an ounce. We believe gold price will continue the trend it formed in 2012 mainly driven by major news announcements relating to U.S and Eurozone fundamentals.

Global gold demand in 2013 will play a pivotal role in price led by three main economies – China, India and Germany.

China: There's evidence already that the Chinese economy is bottoming out and beginning to recover again. Along with it, Chinese gold demand is likely to grow around 10 percent in 2013 from about 800 tonnes this year, as the world's second-largest economy is expected to pick up pace according to The World Gold Council.

India: Imports have more than doubled in three years and investment demand has climbed almost fivefold. And all this occurred while prices were rising and from a nation that already has a strong cultural predisposition towards the metal.

There is some government interference, but no slump in demand in India. This trend will continue and may even strengthen when inflation begins making front-page headlines. 

Germany: A precious-metals group recently reported that Germans are increasingly buying gold because of fears about economic uncertainty in the Eurozone. Analysis shows a third of citizens are now considering gold as part of their investments.

Looking at seasonal cycles – January is typically bullish for gold consumption driven by the wedding season in India as well as fresh investor money coming into the market. Based on historical data this could very quick push gold above $1,700 an ounce. Overall we predict gold price will remain range bound in 2013, trading between a range of $1,600 to $1,800.

Conclusion:

Economic uncertainty in the U.S and Eurozone is likely to affect gold price throughout 2013. The problems in these nations are likely to persist and we doubt they will be resolved anytime soon. With that in mind, gold price right now at $1,670 is looking rather attractive and we believe it will continue to make significant gains in the long-term. Our advice is to continuing buying gold on the dips!

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Nikandphil
Nik Kalsi and Phil Carr are recognised as leading authorities on Gold & Silver trading and investing. They are the founders of thegoldandsilverclub.com and professional commodities traders.

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