Gold price appears to be holding

After steadily rising over the past few weeks, the price of gold has settled to above US$350 at press-time. But, the question on everyone’s mind is whether the yellow metal can hold the recent gains.

On Jan. 4 of this year, gold hit a seven-year low, closing in London at US$328.25. The price languished in the US$330-339 range until mid-April when it finally broke the US$340 mark. In the past three weeks the price has gradually risen, hitting a new high in London of US$356 on April 30. During the early part of this month, gold has been trading in London in the US$353-355 range.

The reason for the upward trend is not clear, but analysts cite a number of factors — a lack of central bank selling, strong buying in Hong Kong, political uncertainty in the Soviet Union, and interest rate cuts in Germany and Japan.

Bruce Reid, a mining analyst at Research Capital Corporation, feels that the recent purchase of $400 million worth of Newmont Mining (NYSE) shares by financier George Soros probably helped the gold price break through the psychological barrier of US$350. Reid said that the price was slowly moving upwards, but Soros’ purchase gave the market a needed boost. Although he would not predict where the gold price was going, Reid did emphasize that many of the gold stocks may have overreacted to the rising price. Vice-president of the International Department at Bendix Foreign Exchange, Julius Gryguc, feels that the upward trend is mainly due to “short covering” (short sellers, who had been betting on a decline were forced to cover their positions by buying futures contracts or options). Gryguc says that eventually the producers will start selling and the prices will drop back into the US$340s range and consolidate there.

Another person unwilling to make any predictions about the gold price was American Barrick Resources’ (TSE) Chairman Peter Monk. However, he did tell shareholders at the company’s recent annual meeting that he thought the sentiment was changing and that gold is being perceived in a more positive light. He feels that the demand for gold jewelry in the Far East will continue to rise. This should help maintain the gold price.