February 2009 Archives

By Steve Ellis Steve Ellis – Wed Feb 18, 6:35 pm ET

Gold is exhibiting all the classic signs of being in a structural bull market. On fears of inflation in early 2008, it rallied. Then, on fears of deflation in late 2008, it rallied again.

So does gold perform better during inflation or deflation?

In our view, that question is the wrong starting point. On the contrary, the rationale for owning gold, as it once again approaches the $1,000 an ounce level, is the prospect of mounting monetary disorder.

The US Federal Reserve, having flooded the market with liquidity by more than doubling its balance sheet in less than six months, may be unable or unwilling to withdraw it in time for fear of precipitating a secondary relapse in economic activity. Other central bankers will also face intense pressures to "support" their domestic economy by weakening the currency, leading to competitive currency devaluations.

The race to the bottom in fiat currencies has begun and hard assets, particularly gold and silver, should be the primary beneficiaries.

Gold is a prime candidate to become a "mania asset" once its demand becomes chiefly financially driven as opposed to jewellery and/or industrial demand driven where its upside could be capped by "sticker shock".

In fact, gold is currently one of the few remaining major asset classes where a case could be made for it to rise in a parabolic fashion. Once the psychologically significant $1,000 an ounce is breached convincingly, the speed of the move beyond that level could accelerate sharply. One precondition for a mania is there must be uncertainty about how the asset is properly valued which allows "new era" thinking to take hold. This is very true for gold.

Price explosion might not be imminent, however. Gold is experiencing unprecedented buying by exchange-traded funds, offset by substantially reduced jewellery demand. The fall in the Indian rupee has meant Indian gold prices have reached record levels. This is causing a slowdown in jewellery purchases (even though rupee expenditure levels are holding up, the tonnage of gold imports is suffering).

The long-term story for gold, however, is as a remonetisation play as investors lose faith in fiat currencies. Keep an eye on gold lease rates; a spike would be a good lead indicator that gold is about to punch higher as this would reflect a shortage of lendable bullion. Rising lease rates will cause gold to go into backwardation as holders of gold may not want to sell their gold forward under any circumstances a trend currently evidenced by the high physical premium being paid for gold coins.

Rising lease rates prefigured the last big move in gold back in the spring of 2007 just as the two Bear Stearns hedge funds were blowing up. Central Banks feared counterparty risk for the first time in 20 years and substantially curtailed gold lending and sales. This led to a 40 per cent rally in gold from $700 to over $1,000.

How high can gold ultimately go? A Dow Jones Industrial Average/gold ratio of 2:1 would be a good sign the bull market in gold is getting well advanced. We saw this in 1932 and 1980. Only nine years ago in 2000, however, this ratio reached over 40:1.

Arriving at 2:1 again does not necessarily mean the Dow must decline significantly from here; more likely gold prices surge and the Dow stays range-bound but volatile. Investors are looking for good risk/reward investments.

I cannot say with any confidence that gold will not be without risk and volatility but at least it offers early participants plenty of upside reward to compensate them for the wild ride.

Speaking to central bankers, this is the first time I can recall them actually favouring a high gold price. Normally they see high gold prices as a lack of trust in the financial system (not to mention their ability as central bankers). Alan Greenspan, the former Fed chairman, for example used to target a gold price of around $400 to $500 an ounce.

Recently, the central bankers have become more enamoured of higher gold prices as it would suggest that their attempts to stave off deflation were starting to work.

Central bankers in favour of higher gold prices? Things really have changed.

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By Nicholas Larkin

Feb. 25 (Bloomberg) -- Gold is the most favored investment this year ahead of investment-grade bonds and other assets, according to a survey of investment advisers, the producer-funded World Gold Council said.

About 60 percent of the 31 advisers surveyed in Europe expect investors to take fewer risks this year compared with 2008, while about 30 percent expect investors to be less risk averse, the London-based council said today in a report. Almost 60 percent expect better market conditions this year.

More than $28 trillion has been erased from the value of global equities in the past year as credit losses and writedowns reached $1.1 trillion. Gold, trading at $970.60 an ounce in London at 3 p.m. today, reached an 11-month high of $1,006.29 on Feb. 20. Demand for a store of value has pushed bullion assets in exchange-traded funds to all-time highs.

“In today’s market, safety and stability are at the forefront of investors’ minds,” Marcus Grubb, the council’s managing director of investment research and marketing, said in the report. “Further de-risking” will likely continue this year because of “uncertainty over the financial landscape, combined with future inflationary fears resulting from interest rate cuts and quantitative easing by central banks.”

The majority of respondents are more concerned with counterparty risk and volatility than lower-yielding investments, the council said.

The following is a table of preference for 10 investments. A figure of 1 is most favored and 10 is least favored.

Asset                            Average Ranking

Gold                                   3.97
Investment Grade Credit                4.13
Commodity Basket                       4.71
Cash                                   4.74
Alternatives                           5.39
Equities                               5.42
Oil                                    5.65
Gilts                                  6.32
Non-investment Grade Credit            6.45
Property                               6.84

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By Pham-Duy Nguyen

Feb. 25 (Bloomberg) -- Gold, little changed today, may rise on speculation that the economy will worsen and the credit crisis will deepen, boosting the appeal of the precious metal as an alternative investment. Silver also was little changed.

The benchmark Standard & Poor's 500 Index tumbled for the seventh time in eight sessions. Gold fell 2.6 percent yesterday as the S&P 500 gained 4 percent. Before today, gold had risen 9.6 percent this year, topping $1,000 an ounce for the first time since March on Feb. 20.

“Those who’ve not yet bought gold as insurance against economic chaos have their opportunity to do so now and we would strongly urge that,” Dennis Gartman, an economist and editor of the Gartman Letter in Suffolk, Virginia, told his clients today.

Gold futures for April delivery rose $1.30, or 0.1 percent, to $970.80 an ounce at 12:42 p.m. on the Comex division of the New York Mercantile Exchange. The price dropped 3.3 percent in the previous two sessions.

Silver futures for May delivery fell 0.1 cent to $14.03 an ounce in New York. Before today, the metal jumped 24 percent this year.

U.S. stocks fell after a report showed sales of previously owned homes unexpectedly declined in January, even as falling prices made them more affordable. Purchases fell 5.3 percent from December to an annual rate of 4.49 million, the fewest since 1997, the National Association of Realtors said today.

Widening Losses

Since the second half of 2007, banks worldwide have posted $1.1 trillion in writedowns and losses related to investments in subprime mortgages. The U.S. government has committed as much as $9.7 trillion to ease the credit crisis and recession.

President Barack Obama last night told Congress the U.S. economic crisis was an opportunity to solve some of the nation’s problems and signaled more taxpayer money would be needed to rescue the financial system.

Gold may gain as investors seek to preserve wealth as asset prices fall, and as government spending spurs future inflation, analysts said.

“The perception is that the economy is still pretty bad and that doesn’t change with just one speech,” said Frank McGhee the head dealer at Integrated Brokerage Services LLC in Chicago. “They’re trying to turn a very big boat. Gold benefits from the uncertainty and the recovery.”

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By Javier Blas in New York

Published: February 25 2009 19:37 | Last updated: February 25 2009 19:37

The rush by retail investors into bullion coins is creating shortages as mints across the world struggle to meet the surge in demand, dealers and mint officials say.

The scarcity is lifting coin premiums to as much as 5 per cent above the spot gold price, a level reached briefly after the collapse of Lehman Brothers last September, when coin shortages also surfaced.

Feb. 20 (Bloomberg) -- Gold rose to more than $1,000 an ounce in New York for the first time in almost a year as investors, spooked by plunging stocks and a deepening recession, sought to protect their wealth.

Gold futures for April delivery rose as much as $23.80, or 2.4 percent, to $1,000.30 an ounce and traded at $995.10 at 9:40 a.m. on the New York Mercantile Exchange’s Comex division. Gold, the only metal to advance in 2008, has rallied every year since 2000 and was up 10 percent in 2009 before today.

Global stocks have extended their slide, erasing 42 percent of their value since the end of August on concern that the economic slump may worsen and wipe out corporate earnings. Governments are lowering interest rates and spending trillions of dollars to combat the recession, also spurring investors to buy bullion as a hedge against potential inflation. Physical demand has pushed gold holdings in exchange-traded funds to records.

“One camp of investors is buying gold because of fear the fiscal stimulus packages are insufficient to bring the economy out of recession,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. “The other camp fears the stimulus packages will lead to inflation.”

Gold last topped $1,000 on March 18 in New York, partly as a hedge against weakness in the dollar. The last time the metal traded this high, the price reached a record $1,033.90 on March 17 before retreating to as low as $681 in October. This time, analysts expect the rally will continue as investors lose confidence in financial assets.

“People will soon realize the dollar is just as bad as other currencies,” said Maria Innecco, a futures broker at MF Global Ltd. in London. “Last year the other currencies were still quite strong. This year we’ve had a year of more troubles, and troubles are still piling up.”

Government Spending

Gold is cementing its status as a haven investment as governments seek to flood the financial system with cash in an effort to haul the global economy out of a recession.

German lawmakers backed a 50 billion-euro ($63 billion) economic package on Feb. 13, the country’s second stimulus measure in three months. The same day, Australia’s parliament cleared a A$42 billion ($27 billion) plan.

U.S. President Barack Obama signed into law a $787 billion package of spending and tax cuts on Feb. 17, and Treasury Secretary Timothy Geithner has pledged as much as $2 trillion in financing for programs aimed at spurring new lending.

The Treasury probably will borrow a record $2.5 trillion in the fiscal year that ends Sept. 30, according to Goldman Sachs Group Inc.

Investment Flow

Gold above $1,000 may attract more investors seeking to take advantage of the longest advance in the metal’s price in 60 years. Assets in some of the industry’s largest exchange-traded funds are at all-time highs.

Holdings in ETF Securities Ltd.’s gold exchange-traded commodities rose to a record 7 million ounces as of Feb. 13. The SPDR Gold Trust, the biggest ETF backed by the metal, expanded to 1,029 metric tons yesterday, closing in on the reserve holdings of Switzerland, with 1,040 tons, as the world’s sixth-largest owner of gold. Zuercher Kantonalbank’s fund has record assets of 3.734 million ounces.

Investment demand for bullion, including coins and bars, almost tripled to 399 tons in the fourth quarter, as total demand climbed 26 percent to 1,036.5 tons in the period, the London- based World Gold Counil said on Feb. 18. Retail and professional investors will continue to seek gold’s stability, said Aram Shishmanian, the council’s chief executive officer.

The value of gold held by investors at the Perth Mint in Western Australia has doubled to “comfortably over $2 billion” in the past year, with 80 percent from overseas, Nigel Moffatt, treasurer and manager of the mint, said on Feb. 13.

Eagle Flies

Sales of 1-ounce American Eagle gold coins more than quadrupled in January to 92,000 ounces from a year earlier, the U.S. Mint said this month.

Among other metals, silver gained 46.5 cents, or 3.3 percent, to $14.40 an ounce in New York. The metal climbed 23 percent this year before today, the best-performing commodity this year in the UBS Bloomberg CMCI Index of 26 raw materials.

Platinum jumped $13, or 1.2 percent, to $1,089.50 an ounce, and palladium fell 10 cents to $216.50 an ounce in New York.

Gold’s all-time inflation adjusted record is $2,224 on Jan. 21, 1980, according to a calculator on the Web site of the Federal Reserve Bank of Minneapolis.

“It doesn’t matter right now whether it’s deflation or inflation,” Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia, said in a Bloomberg Television interview. “Gold wants to go up. Don’t fight that trend.”

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March palladium futures gained 40 cents, while March copper futures fell 5 cents, or 3.5%, to $1.42 a pound.

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Tokyo - Gold slipped on Thursday, taking a breather after hitting a new seven-month high in early trade, as it consolidated gains before a widely anticipated challenge to a fresh peak near $1 000 on safe-haven buying.

Technically, the yellow metal is overbought in the short term, although another record in the holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, highlighted robust interest by investors.

Spot gold was trading at $977.30 an ounce by 03:29 GMT, down 0.8% from New York's notional close on Wednesday.

Earlier on Thursday it briefly rose as high as $985.95, its highest since July. It is now about 4% below the all-time high of $1 030.80 marked in March, when record oil and uncertainties in the dollar's outlook spurred buying.

In other markets, the dollar stayed near a six-week high against the yen and a three-month peak versus the euro, both marked on Wednesday, when President Barack Obama pledged up to $275bn to stem US home foreclosures.

But gold has reacted little to the dollar's rally.

'Next target is $1,030'

The precious metal has lost a traditional negative correlation with the dollar in the past few months. Gold has also benefited from long-term inflation worries, as many countries are printing money to stimulate sluggish economies and central banks have loosened credit, analysts said.

"The next target is $1 030, having cleared the high set in October of $930," said Naomi Suzuki, an analyst at SCM Securities in Tokyo, referring to last week's move.

"Gold is a relative choice. It is benefiting from instability in the global economy, fears of super inflation in the coming years and investor aversion from more complicated, riskier assets, like hedge funds," she said. . .

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Wednesday February 18, 2009, 2:00 am EST

NEW YORK & LONDON--(BUSINESS WIRE)--Sustained investor interest in gold over the course of 2008 against a backdrop of the worst year on record for global stock markets and many other asset classes, helped push dollar demand for the safe haven asset to $102bn, a 29% increase on year earlier levels. According to World Gold Council’s (“WGC”) Gold Demand Trends, identifiable gold demand in tonnage terms rose 4% on previous year levels to 3,659 tonnes.

As shares on stock markets around the world lost an estimated $14 trillion in value, identifiable investment demand for gold, which incorporates exchange traded funds (ETFs), and bars and coins, was 64% higher in 2008 than in 2007, equivalent to an additional inflow of $US15bn. Over the year as a whole, the gold price averaged $872, up 25% from $695 in 2007.

The most striking trend across the year was the reawakening of investor interest in the holding of physical gold. Demand for bars and coins rose 87% over the year with shortages reported across many parts of the globe.

The figures compiled independently for WGC by GFMS Limited, showed jewelry demand up 11% in dollar terms at almost $US60bn for the whole year, but down 11% in tonnage terms at 2,138 tonnes. The adverse economic conditions across the globe paired with a high and volatile price impacted jewelry buying in key markets, but resilient spending on gold jewelry indicated the strength of underlying demand when the market offered attractive price points.

Industrial demand in 2008 was another casualty of the global economic turmoil, down 7% to 430 tonnes from 461 tonnes in 2007. With the electronics sector the main source of industrial demand, reduced consumer spending on items such as laptops and mobile phones had a direct impact on gold demand.

Aram Shishmanian, Chief Executive Officer of World Gold Council, said:

“These figures confirm that investors around the world recognize the benefits of holding gold during this time of unprecedented global financial crisis, recession and concerns regarding future inflation. Gold has again proven its core investment qualities as a store of value, safe haven and portfolio diversifier and this has struck a chord with uneasy investors.

“While current market conditions have impacted consumer spending on jewelry, purchasers in many of the key gold markets understand gold’s intrinsic investment value and continue to buy.

“The economic downturn and uncertainty in the global markets that has affected us all is unlikely to abate in the short term. Consequently, we anticipate that gold, as a unique asset class, will continue to play a vital role in providing stability to both household and professional investors around the world.”

Total demand remained very strong in the fourth quarter of 2008, up 26% on the same period last year at 1036 tonnes or $26.5bn in value terms.

The biggest source of growth in demand for gold in Q4 was investment. Identifiable investment demand reached 399 tonnes, up from 141 tonnes in Q4 2007, a rise of 182%. The main source of this increase was net retail investment, which rose 396% from 61 tonnes in Q4 2007 to 304 tonnes in Q4 2008. The most dramatic surge was in Europe, where bar and coin demand increased from just 9 tonnes in Q4 2007 to 114 tonnes in Q4 2008, a 1,170% increase. ETF holdings broke new records during the quarter. Although the net quarterly inflow was down from the level of the previous quarter, the growth rate on Q4 2007 was a strong 18%.

Total demand in India, the world’s largest gold market, in the fourth quarter was up 84% in tonnage terms, led by a very strong 107% rise in jewelry demand, underpinned by investment attributes of gold. This phenomenon has to be set against a very weak Q4 2007, however. Total gold demand in Greater China in Q4 was resilient to the global turmoil. Total off-take was up 21% on the same period last year, with investment the main contributor to growth but jewelry demand also holding up well.

Investment demand in Thailand soared during the quarter, from a net outflow of 8 tonnes in Q4 2007 to a net inflow of 21 tonnes in Q4 2008. As with many other parts of the region, this turnaround was underpinned by safe haven buying.

Demand in the Middle East in Q4 2008 was up 1% on year earlier levels, with the strong growth in the bar and coin market (up 139%) offset by 7% decline in jewelry demand, which makes up 90% of the market in this region. A combination of gold price volatility, a sharp fall in the local currency, and exchange rate uncertainty led to a 59% fall in overall gold demand in Turkey in the fourth quarter.

In the United States, the deteriorating economic conditions produced a mix result for gold demand. Fourth quarter jewelry demand was down 35% as consumer spending plummeted. In stark contrast demand for gold bars and coins rocketed by 370% in Q4, representing 35 tonnes of gold.

Gold supply in Q4 was up 5% relative to year-earlier levels and year-on-year, declined 1%. Slightly lower mine production, higher levels of scrap and lower levels of gold producer de-hedging, were partly offset by lower net central bank sales in Q4 2008, which totaled 71 tonnes, down from 97 tonnes in Q4 2007.

  

Gold jumps 3 pct to 6-1/2 mth high on risk aversion

Wed Feb 11, 2009 10:47am EST

* Bullion reaches highest level since July 2008

* U.S. bank rescue plan disappoints

By Jan Harvey

LONDON, Feb 11 (Reuters) - Gold jumped 3 percent to a 6-1/2 month high on Wednesday as risk aversion prompted investors to buy gold and bullion-backed exchange-traded funds as a haven.

Prices pushed through tough resistance just above $930 to reach a peak of $944.30.

At 1528 GMT spot gold <XAU=> was quoted at $944.20/946.20 an ounce, against $914.15 late on Tuesday. U.S. gold futures for April GCJ9 delivery on the COMEX division of the New York Mercantile Exchange rose $29.10 to $942.80 an ounce.

Prices have moved upwards throughout the day as investors digested details of a bank bail-out plan announced in the U.S. on Tuesday.

"There was a lot of disappointment behind the package, either because the measures weren't concrete enough or because they thought they hadn't tackled the root cause of the problem," said BNP Paribas analyst Michael Widmer.

"A lot of investors reassessed the risk in the market, and as risk aversion increased, it helped prices."

The United States on Tuesday rolled out a revamped bank rescue plan that may cost more than $2 trillion. Stocks slid by the most in two months after the plan was unveiled, while gold climbed 2 percent as investors sought safety.

CMC Markets strategist Ashraf Laidi said doubts about the U.S. plan to shore up banks and the economy had led to fears of an escalation of debt issuance.

"This combination of further debt escalation with a lack of any economic result is further fortifying gold's ascent," he said.

Physical gold and bullion-backed ETFs have increased in popularity in recent months as risk aversion has increased.

Holdings of the world's largest bullion-backed ETF, the SPDR Gold Trust GLD, rose to a record 894.72 tonnes on Feb. 10, up 12.85 tonnes from the previous day.

Gold's main external driver, the dollar, weakened against the euro as traders locked in profits made in the previous session.

A softer dollar typically benefits gold, which is often bought as a hedge against weakness in the U.S. currency.

Among other assets, U.S. stocks opened higher as investors hunted bargains following a sell-off sparked by the U.S. bank plan. European shares slipped, however.

Oil prices pared gains to hold below $38 a barrel after the International Energy Agency said fuel demand would contract more sharply than previously thought.

[NOTE TO READERS:  Experts agree that ETF's do not provide the protection, preservation and diversification aspects of physical gold assets.]

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from www.NASDAQ.COM

(RTTNews) - Gold prices rallied again on Thursday as traders considered interest rate decisions from the UK and Eurozone and more grim economic data from the U.S. The metal has added more than $20 over the last two sessions to pare some losses from earlier in the week.

April gold climbed to $914.20, up $12 on the session. The metal hit as high as $926.30 earlier in the session.

Interest rate decisions were again in focus on Thursday. The European Central Bank left its key interest rate unchanged at 2% after reducing the rate four times since October 2008. Meanwhile, the Bank of England lowered its key interest rate by 50 basis points to 1%.Both moves were highly-expected.

In the U.S., the Labor Department report showed that initial jobless claims rose to 626,000 from the previous week's revised figure of 591,000. Economists had expected jobless claims to edge down to 580,000 from the 588,000 originally reported for the previous week.

On Friday, the government will release its monthly jobs report. Economists anticipate a loss of 553,000 jobs and an unemployment rate of 7.4%.

A separate Labor Department report showed that non-farm labor productivity jumped 3.2 percent in the fourth quarter following a revised 1.5 percent increase in the third quarter. Economists had been expecting a more modest increase of about 1.5 percent.

Later, a Commerce Department report showed that orders for manufactured goods fell by 3.9 percent in December following a revised 6.5 percent decrease in November. Economists had expected orders to fall by 3.1 percent compared to the 4.6 percent decrease originally reported for the previous month.

Also on Thursday, UBS raised its forecast for the price of gold, saying it now predicts the metal to average $1,000 an ounce in 2009. This is up from the previous forecast of $700.

The dollar was mixed versus other majors on Thursday, skyrocketing versus the yen but staying under heavy pressure versus the resurgent sterling. Gold usually moves opposite the dollar because of the precious metal's hedge appeal.

The price of gold added more than $9 to top $900 an ounce on Wednesday and pared some of its recent slump. Gold fell $14.70 on Tuesday, adding to the drop of more than $20 from the previous session. The slide took the metal away from a six-month closing high from Friday.

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By Stewart Bailey

Feb. 3 (Bloomberg) -- Eric Sprott, the Canadian money manager who last year predicted banking stocks would collapse, said the U.S. is at the beginning of an economic depression that will help gold prices more than double.

Bullion may top $2,000 an ounce in coming years amid a series of financial catastrophes, the chairman and founder of Toronto-based Sprott Asset Management Inc. said yesterday in an interview. Banks will battle to replenish capital, Treasury auctions stand the risk of failing and the moribund economy will create a dire operating outlook for many companies, he said.

“The trend is down, and there’s not one signpost that says it’s changing yet,” Sprott said yesterday from Toronto. “We’ll stand by to wait to see those, and until it does, you have to assume it gets worse.”

Sprott, who manages $4.5 billion, said in March that the world was in a “systemic financial meltdown,” a call that presaged the collapse of financial institutions including Bear Stearns & Co. and Lehman Brothers Holdings Inc. Since then, the U.S. has entered the worst economic slowdown since the Great Depression, credit markets have tightened and asset prices have dropped as companies and funds sell portfolios to raise cash.

The 81-company Standard & Poor's 500 Financials Index has dropped 62 percent since Sprott said on March 6 he was buying bullion and gold-producers’ shares, while shorting financial- sector stocks. Gold slipped 6.3 percent during the same period.

So-called short-selling allows speculators to profit from a stock’s decline by borrowing shares, selling them to raise cash and buying them later when the price drops to repay the debt.

Sprott Funds

Sprott Hedge Fund LP posted a one-year return of 9.9 percent, while Sprott Hedge Fund LP II rose 18 percent in the period, according to data posted on the company’s web site. The Sprott Canadian Equity Fund dropped 37 percent.

Sprott now favors buying more gold stocks and bullion while selling the entire equity market short. Most at risk in the current climate are banks, discretionary consumer stocks and any companies needing to refinance debt, he said.

Sprott believes there is a chance that a U.S. Treasury auction will fail as countries use their resources to quell financial turmoil in their home markets, leaving less to help finance the world’s largest economy. That outcome will have a “catastrophic” impact, he said.

“When do people stop buying the credit of the country? That’s a tough question to answer, but it’s on a lot of people’s lips right now,” he said. “Each country has their own financial problem, so there’s no funding for anything external.”

Gold Investors

Such concerns have driven investors to the gold market, propelling the metal higher as other commodities have slumped and helping gold producers' stocks almost double in the past three months.

Greenlight Capital Inc., a $5.1 billion New York-based hedge fund, has invested in gold for the first time, while Federated Investors Inc.’s $1.3 billion Federated Market Opportunity Fund, which outperformed 99 percent of rivals last year, now counts Yamana Gold Inc. and Goldcorp Inc. among its largest investments.

Gold companies such as Newmont Mining Corp. and Kinross Gold Corp. have taken the opportunity to issue stock to bolster their own balance sheets.

Barrick Gold Corp. Chairman Peter Munk said last week he has been inundated with calls from wealthy investors seeking to buy gold to protect their capital.

“The window to raise money for gold stocks has blown open,” Sprott said. “The investing public has started to go to that one thing that they think it’s safe to invest in.”

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By Lynn Thomasson

Feb. 2 (Bloomberg) -- The Standard & Poor's 500 Index will fall, wiping out its 9.8 percent gain since November, as President Barack Obama's so-called bad bank plan takes months to carry out and the recession worsens, Barclays Plc said.

“We suggest putting down the champagne glass and drinking a cup of coffee,” Barry Knapp, chief U.S. equity strategist at Barclays said in a report dated Jan. 30. “The policy euphoria associated with the ‘bad bank’ plan will prove to be short lived.”

The S&P 500 jumped 3.4 percent on Jan. 28, last week’s biggest daily gain, when government officials said the White House is moving closer to a plan to buy toxic assets from banks. The complexities of the program mean it will take months to implement, said Knapp, who reiterated his forecast that the U.S. stock benchmark will drop to 750 in the first quarter, the lowest level in 11 years.

Economic data that is still “unequivocally negative” will also prevent a rally in the stock market anytime soon, the strategist wrote. The S&P 500 dropped less than 0.1 percent to 825.44 today after the Commerce Department reported U.S. consumer spending fell in December for a record sixth consecutive month.

Barclays joins Goldman Sachs Group Inc. in predicting the S&P 500 will retreat back to the Nov. 20 low of 752.44 as approval of legislation to support the economy and financial system takes longer than investors anticipate.

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Analysts say safe-haven buying is driving the precious metal well above $900 an ounce. Some see $1,000 on the horizon.

NEW YORK (CNNMoney.com) -- The price of gold continued to climb Friday after a bout of grim economic news increased the precious metal's safe-haven appeal.

Gold for April delivery was up $20, or 2.2%, to $926.5 an ounce on the New York Mercantile Exchange. The rally extended on gold's $16 dollar advance in the previous session.

"It's continued safe haven jitters," said Jon Nadler, senior analyst at Kitco Bullion Dealers in Montreal. "With the stock markets looking as poor as they are, investors are saying: where do I park my money?"

Stock prices fell for the second day in a row Friday after the government said the nation's economy suffered its sharpest decline in 26 years during the last three months of 2008.

Gross domestic product, the broadest measure of economic activity, declined at an annual rate of 3.8% in the fourth quarter, adjusted for inflation.

While the drop in GDP was less severe than the 5.5% decline economists were expecting, it was still the largest fall since the first quarter of 1982, when the economy suffered a 6.4% decline.

Friday's report comes one day after the government released dour reports on the labor market, durable goods orders and housing.

As the recession drags on, and the economic outlook remains cloudy, many investors are turning to hard assets, such as precious metals, as an alternative to more risky bets in the stock market.

At the same time, gold's strength has drawn the attention of some large investment funds, Nadler said. The rally "encourages a lot of the sidelined money to get in," he said.

Gold holdings in the SPDR Gold Trust (SPDR), the biggest exchange-traded fund backed by gold, expanded to a record level. Gold ETFs are funds that store gold in a trust and allow investors to buy and sell shares of that trust on the New York Stock Exchange.

Meanwhile, the run-up is also attracting "retail investors" seeking to cash in on gold's luster, according to Ashraf Laidi, a gold and currency strategist at CMC World Markets in London.

With gold prices comfortably above $900 an ounce, "retail investors worldwide begin to chase the headline-grabbing trend (+$900) and drive the metal further up," Liadi said in a research note.

Carlos Sanchez, a precious metals analyst at New York-based specialty commodities firm CPM Group, said he thinks gold is poised to go above $1,000 soon.

"If we continue to see bad economic conditions and deterioration in the financial markets, I think we could see that next month," Sanchez said in reference to the $1,000 mark.

Gold surged above $1,000 for the first time in history last March as investors sought shelter from volatile financial markets. But demand for the metal at such lofty prices proved unsustainable. It tumbled to $720 an ounce in October amid a broad selloff in the commodities markets and a prolonged dollar rally.

The U.S. dollar continued to rally against the euro Friday after a European Union report showed euro-zone inflation fell to a near-10 year low and unemployment in the region rose to a two-year high.

A stronger dollar normally pressures the price of gold since it is indicative of rising inflation. But with inflation gauges at multi-year lows, the dollar appears to be "decoupling" from gold.

This divergence from the normal trend occurred earlier in the week "as both dollars and gold were sought as safe-haven," Nadler said.

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