At the Current Rate of Increase, Gold Will Be at $950 by Year-End

While my own opinion, and that of a number of others, is that the movement of the gold price is primarily inversely related to the strength of the US dollar, commodity aspects also come into play on the margins. In other words, should jewellery demand in particular dry up, the gold price will suffer, but should jewellery demand remain strong, or increase, the additional marginal impact will help push the bullion price up sharply in times where other sources of supply may actually be on the wane, or at best pretty well static.

And the latter is what appears to be happening at the moment. Worries that higher prices might dampen jewellery demand in India, where sales at this time of year tend to be particularly strong due to the Diwali festival and the traditional wedding season, are not yet apparent with price currently having little impact on sales.

Thus we are now seeing a situation where ‘safe haven' demand, dollar devaluation and high jewellery sales are all coming together to drive up the gold price. $800 is almost there, and so far there seems little sign of the current gold price upwards momentum coming to a halt. This growth spurt really got under way in mid-August as some of the initial impacts of the subprime crisis started to unwind. If the current rate of price increase continues we will see a year-end gold price of around $950! It has risen just over 20 percent in the past two months and a further 20 percent increase over the remainder of the year would bring it to that level. This rate of increase would bring the yellow metal past its old high of $850 an ounce just after Nov 20th. That date would be a useful pointer as to whether a $950 year-end price is actually achievable.