September Gold season sees precious metal close on $1000 per ounce

A midweek spike in gold prices has seen the precious metal clear a key resistance level of just over $960/oz with an easing U.S. dollar adding to its outlook on the upside.

After several weeks rangebound between $935 and $960 gold pushed sharply higher in Wednesday trade, briefly nudging $980 and holding above $975 in Thursday morning European trade.

Ovanes Oganesyan, analyst at Renaissance Capital believes the immediate trigger for this weeks correction has been the Japanese stock market.

“There was a serious correction in the stock market in Japan earlier this week, which smoothed investors’ appetite for risk and made them diversify and switch to safer things, that is gold for today.”

Another key factor providing support for the oldest precious metal is the global economic outlook, which has been bolstered by a range of national stimulus plans since the end of 2008. Analysts say differing expectations about outcomes when governments may try to pull economic stimulus out are also supporting gold. Marat Gabitov, metals analyst at Unicredit Securities believes this weeks surge in gold has come in the wake of perceptions that economies could slide again when stimulus measures are taken away.

“I think, high volatility mostly caused a jump in the gold price. Some large world economies threatened to stop their stimulus plans, thus causing fears of the further downturn of the world economy and lower prices for basic assets.”

Nikolay Sosnovsky, metals analyst at Uralsib Capital, on the other hand, believes it is inflationary expectations, with major interest rates at record lows, government spending at records highs, and concern about the outlook for the US dollar which has triggered the recent spike.

“Well, inflationary expectations is one of the major factors, as dollar is weakening at the moment and gold is denominated in this currency. So, people just try to hedge themselves buying gold.”

Ovanes Oganesyan also believes that the combination of concerns about the global economy and the U.S. dollar will continue to support gold going forward.

“There are two major scenarios for the future of the world economy. One of them involves higher risks in the market, and the other – a weaker dollar. Both of them will cause a higher gold price, so whatever happens in the near future, I believe, gold will grow.”

September is traditionally a strong month for gold, marking the onset of the wedding season in India, the world largest jewelry consumer. Sales have come to a virtual standstill this year with buyers facing the highest sustained prices ever, and gold being recycled in greater volumes. Marat Gabitov believes that although gold prices will continue to hold about where they are, the price is high enough to be prohibitive, and that any further surge over the longer term will likely only follow other metals pushing higher, most on signs of sustained global economic rebound.

“Our forecast for the average gold price in 2009 is about $975 per ounce, and we expect a positive trend in 4Q this year, as this is the wedding period in India, one of the world’s largest consumers of gold. Anyway, I think, in the future gold price will largely depend on the price of other commodities, metals in particular, as people today are not ready to buy more gold.”

But Nikolay Sosnovsky says the possibility that gold may clear the $1000/oz mark may see the precious metal push substantially higher, after spending much of this year between $912 and $955 per ounce, in volatility stemming from U.S. dollar sentiment.

“Actually, the market is very volatile at the moment and any news could change the sentiment on the spot. However, gold price is very close to $1000 per ounce right now at the weakening dollar, and, I think, if it breaks the 1000 mark, the price could start rising sharply to some $1100 – $1200 per ounce. Anyway, gold will follow the dollar movements, I suppose.”