Gold prices rose over $100 an ounce for the third-quarter settling at $1,622.30. The 6.5% gain was no easy ride for investors who saw prices north of $1900 just last month. The turbulence has refueled debate over the precious metal's stature as a safe haven investment, with many viewing the September 10% sell-off as a sign the bubble burst. Alix Steel, reporter covering the metals beat for TheStreet.com, couldn't disagree more.
"Prices are broken, you definitely can see that, but I don't think the bubble has burst here," she says. Steel points out that the most recent rally in gold has spanned over two-years, and the last two-months alone have seen prices jump over $300 an ounce. "Prices have a right to come off," she says, expecting volatility to persist in the fourth quarter.
"I don't think we're going to see a huge rally right off the bat. I think we're going to have a period of consolidation," she says. However, her ear is to the wall on the gold trade and she's still hearing calls from traders that have gold rebounding by year-end up to levels between $1,800 - $2,000 an ounce.
Steel explains that demand driving the precious metal higher is not Western centric. Here, we see gold action influenced more by technical levels, whereby a consolidation move could be easily fueled into a major correction or crash. But what's easily forgotten is the strength in Asian demand. "India could be importing a thousand tons of gold this year," says Steel. As her sources explain, there's rampant buying there sending premiums up "gangbusters." And of course there's China, a key demand player that has gone from net neutral to a positive demand effect of 300 tons per years according the World Gold Council. China accounted for 6% of total global demand in 2000 and rose to 18% in 2010.Read More »from Gold Outlook for Q4: Buy or Beware?