Volatility at Gold Price

“Gold (Au), is a chemical element, a dense, lustrous, yellow precious metal of Group 11 (Ib), Period 6, of the periodic table. Gold has several qualities that have made it exceptionally valuable throughout history. It is attractive in colour and brightness, durable to the point of virtual indestructibility, highly malleable, and usually found in nature in a comparatively pure form”.[1] In addition to that, history of the gold is also rich and complex, including hopes and disappointments of mankind to change their fortunes. However, here I will only touch upon recent price fluctuations for the gold as financial commodity.

Gold price was considerably stable for 20 years, between 1984 and 2004. But ever since 2001 gold price has constantly and dramatically increased every year from its low of around $252 to $1.889 per ounces.

Gold price in USD/oz

gold 30 year gold 2 year

In my opinion driving force behind this salient price rally was due to losing faith for the alternative instruments and increasing political risks in the Middle East after 2008. As the ‘Mortgage Crisis’ in the USA turned into ‘Global Economic and Financial Crisis’ with the break up scenario of European Union by the ‘Sovereign Debt Crisis’, it is not surprising that investors to sail for safe haven – which is buying gold in this particular case.

Subsequently, major central banks as FED, ECB and BoJ decided to create a leeway through monetary expansion. And this policy fostered the price rise for gold in return. However, all these developments cannot be the only reason for this rally. Because there is a reality that, unmined gold reserves and current  demand per year – either for investment purpose or jewelry – do not indicate a sustainable balance. If we consider that, with current conditions there is only ten-year reserve left the price climb make better sense. And if you add the speculative factors into the equation than the picture gets sharpen I guess.

On these grounds, I expect we will be observing more fluctuations in the future based on 20 year tranquil period. As a beginning I believe that $1.550 per ounces will be the first and a very strong point to be tested in the short run. And with regards to my calculations, if this level is broken than second support is around $1.480.

             Ergun UNUTMAZ, 21/02/2013