Gold prices surged in August from one new all-time high to the next. Despite a swift correction near the end of the month that carried gold back down some $200 or so an ounce from its record high near $1,911, I’m confident gold’s long-term uptrend will continue in the months and years ahead, ultimately reaching a multiple of today’s record level.
In the immediate future, gold may resume its supercharged advance, settle into a new trading range or plummet further as technical traders take profits and physical buyers pause for a break.
The recent sizable correction should have come as no surprise. After all, even strong bull markets never move up in straight lines. After gold’s recent meteoric performance, I expected gold might tumble back to earth — falling back $100, $200 or even $300 — before prices begin working their way higher once again. The days ahead should provide clues as to whether the correction has already run its course. Much depends on news from the Federal Reserve and the European Central Bank about forthcoming changes.
Limited downside risks
Gold will soon begin to benefit from increased seasonal demand — demand that should support the yellow metal’s price and limit downside risks right through New Year’s Day.
For sure, irrespective of the season, Asian demand — principally from China and India — for physical metal will continue to underpin these markets and limit downside risks as buyers step-up on any sharp price dips that may occur.
So, too, will bargain hunting by a number of central banks eager to raise their official gold holdings without disrupting the world gold market by increasing upward price volatility.
There is no reason to believe that the forces and factors pushing gold higher are simply going to disappear anytime soon. I’ve been talking about many of these for years. I expect I’ll still be talking about them for years to come.
At the top of my list of bullish forces supporting the long-term gold-price uptrend are:
(1) Recognition of recessionary trends in the industrial economies and the implications for future monetary policy.