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Gold price uptrend secure, $728 a target

[miningmx.com] -- The gold price could break through $728 once the next rally in the metal picks up steam and the key to figuring out when that rally will start lies in the ratio between gold and its related equities, RBC Capital Markets analysts said.

challenge and exceed the existing highs

8 hour (New York) $US Dollar price per ounce.

By Allan Seccombe Posted at miningmx.com Thu, 22 Mar 2007

“We believe that the next sustainable rally phase, once it gets going, will successfully challenge and exceed the existing highs at $728,” analysts Ray Hanson and Robert Sluymer said in a technical analysis note.

The ratio between the Amex Gold Bug index (HUI) and the price of gold will indicate when the next rally in the metal. Gold rallied strongly at the start of last year and hit a 26-year high of $728 in May.

gold price “If the HUI/bullion ratio is able to break above its late-February high before bullion gets back above $691.90, then stocks will be leading once again to the upside and thereby signalling the start of a significant new upleg for the sector,” the analysts said.

Gold spiked at $691.90 in February after falling back quite sharply from a mid-December peak of $655.

The charts show HUI testing a trendline starting in May 2005, breaking through it but not closing below that line, they said. Gold futures, however, have remained above that trend line.

“The relative weakness of stocks to bullion in recent weeks says to us that the sector is still in a longer-term consolidation phase that began last May at $728,” the said.

Gold probed territory above a three-week high of $664 on Thursday on the back of higher crude oil prices and the dollar pushing to two-year lows against the euro. Gold was last bid at $663.55/oz.

The pullback in the dollar stems from Wednesday’s decision by the US Federal Reserve to keep interest rates steady and hinting at increasing rates, Reuters reported.

John Meyer, head of mining equities at Numis Securities, said the outlook for the gold price this year bodes well for stronger prices.

“The drivers for gold look set to support firm prices over the year ahead,” he said, noting the start of the Indian wedding season in April and the Akshaya Trithiai festival will bolster physical demand for gold, but possibly at lower levels than other years because of current high prices.

“The continued expectation of a weaker dollar will tend to support the case for higher gold prices in dollar terms,” Meyer said.

The gold price could still be in a secular uptrend despite the net sell off in commodities over the past 10 months according to Commodity Research Bureau data, the RBC analysts said.

Gold recently tracked a strong sell down in equities sparked by a fall in Chinese shares.

“It would appear that gold too has been the object of forced liquidation, since it has tracked very close to equities in their recent decline, and has basically not benefited from pronounced US dollar weakness over the past several weeks,” the RBC note said.