GOLD - Buy the rumour - sell the fact

GOLD - Buy the rumour - sell the fact

London, 11 November 2011

Sharps Pixley: Gold's edging higher over the last few weeks can be attributed to a host of factors but certainly the rising cost of funding Italy's debt towards the pivotal 7% has had the market in thrall. The 7% has been seen as the level beyond which Italy would be forced to seek support from the ECB and IMF and, to put it frankly it remains, a moot point whether there is sufficient funding to do much for them. In short, gold prices have benefited from what has appeared to be a slow speed train crash in the Eurozone.

Gold prices have gained 15% since bottoming at $1,530 on 26th September as the Italian 10 year bond rates crept higher. In a sense, investors were buying the 'rumour' or expectation that rates would rise through the critical 7% level. When rates finally went through 7% on Wednesday gold perversely fell - a case of selling the fact. This has created a good entry opportunity for investors wishing to enter the market at an attractive level.

Italian rates have subsequently eased and are currently trading at 6.62% on the back of ECB intervention.

The outlook for the remainder of the year remains positive. Trading in December is traditionally quite lacklustre and we would expect gold to simply edge into the mid $1800's before trading activity tails off. Were this to be so, gold will have seen a fullsome 30% rise on the year which is a tad higher than we saw in 2009 and 2010.

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