Beware the scorching gold rally

THE jargon of gold trading echoes that of poker.

“Strong hands” are investors loyal to the metal no matter the price. “Weak hands” are flaky punters who fold at the first sign of trouble. Bullish investors win when they convince others of their story for why the price is rising, which boils down to why, this time, strong hands outnumber weak ones. Their bluff is called when the market softens. If the price does not rebound, their story collapses. If it does, it gains credence.

This year, the bulls are winning so comfortably that the argument would seem to be over. After the gold price hit US$4,380 an ounce, a record, on Oct 20, it fell by more than 10 per cent – only to recover some of its losses.