October 2009 Archives
Dennis Gartman, Editor, The Gartman Letter
Bloomberg Television Interview
October 30, 2009
Bloomberg: We know you’re a reluctant gold bull. Do you
have gold bars in your basement?
Gartman: I have some coins and we’ll let it go at that. Yeah, I actually have a little gold bullion. I think everybody should have a
little bit just in case. But do I like that? No. Do I like being bullish of gold? And I am
bullish. I have been long of the gold
market for a long time in dollar terms, in euro terms, in British pound
sterling terms. But am I happy when I’m bullish of gold? No, because its really
not a bet on all things great. It’s a
bet on inflation. It’s a bet on monetary policy going awry It’s a bet on the
things that John [earlier interview] was just saying that my old friend Paul Tudor Jones owns gold
for
Bloomberg: How much farther does the dollar have to go,
because you can’t talk about gold without talking about the dollar?
Gartman: Well actually, you can talk about gold going
up in terms of other currencies and that’s what’s important.
Bloomberg: Can we see $1,300 oz by March?
Gartman: By March? I guess you can. I like to say that the trend is moving from the lower left to the upper right. We’ll go higher. I think we’ll be higher a month from now than we are now. I think we’ll be higher six months from now than we will be a month from now, but if you say will it get to a price by a certain time and if you miss either one, people come back and call you a fool. So having been in this business for 35 years, I’ll simply say that [you should] take a look at the chart you have in front of you now. It’s moving from the lower left to the upper right. It’ll probably continue to do that.
Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold
October 30, 2009
In his latest letter to investors, hedge fund manager and legendary trader Paul Tudor Jones outlines his firm's thoughts on the topics of equities, bonds, and currencies. Tudor's letter is one of those 'must reads' as his macro sense is phenomenal and he is one of the greatest traders of all time (performance returns summary here). What's interesting about his latest letter is the fact that they included a special section addressing the all too talked about precious metal.
Gold
The macro perspective section of their letter notes how gold is not consumed but rather accumulated as a store of value as it has been a 'medium of exchange for over 5,000 years.' What's interesting is that they plot out inflation-adjusted gold prices and note that we are still far off from the highs seen over 2 decades ago. Tudor puts the inflation-adjusted peak price of gold to be between $1,600-$2,400, with the previous high coming in at $2,422. While Tudor says he has never been a gold bug, he says all assets have a time and a place. And conveniently enough, he says now is gold's time. Tudor joins an army of other prominent hedge fund managers bullish on the precious metal including David Einhorn of Greenlight Capital who has gone as far as storing physical gold. Additionally, John Paulson of Paulson & Co has $4 billion in gold investments, among many other managers.
Tudor's econometric model has determined that gold is 20% undervalued over the next 24 months. This takes into consideration real rates on the price of gold, inflation, and M2 growth. Tudor expects the velocity of money to rise over the next two years, enhancing the bullish case for gold. Additionally, they also cite the supply/demand equation and prudently bring up the fact that a new class of investors has arrived: retail investors gaining access to the metal through exchange traded funds (most notably GLD). Tudor then presented these amazing facts: "The trailing 12-month ETF accumulation has "bought" the equivalent of 25% of new mine production consistently since the beginning of the year. By year-end 2009, the total ETF gold position will hold 3% of global available supplies, making ETFs the sixth largest holder of gold in the world." Tudor expects inflows into these vehicles to continue, furthering the case for a position. Lastly, Tudor highlights another important factor in the gold equation: central banks. He notes that in the second half of this year, the 'official sector will become a net buyer of gold.' We also yesterday posted up an excellent technical analysis video on gold which concurs that gold is in a long-term uptrend. The video outlines $1000 as a key level to stay above and outlines buy points at support as well as price targets going forward.
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By Kim Kyoungwha
Oct. 28 (Bloomberg) -- Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith.
“In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”
The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession.
“When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.”
Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent.
Gold Forecasts
Smith joins investors including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire said on Oct. 22. Gold will probably top $2,000 in the next decade as the dollar weakens, Rogers said Oct. 7.
Superfund, founded in 1995 and backed by $1.6 billion in assets, specializes in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24 percent this year, Smith said.
The ratio of silver to gold, currently at 62.35, will be
“cut in half” in the next three to five years as millions of
people in South Asia and China buy the metal as an alternative
because they can no longer afford gold, Smith said. Silver has
soared 46 percent this year to $16.65 an ounce.
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October 23, 2009
Bank closings for the year have surpassed 100 as regulators shut down small banks in Florida and Georgia.
The FDIC took over Partners Bank in Naples, Fla. American United Bank in Lawrenceville, Ga., also failed. They boosted to 101 the number of bank failures so far this year.
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October 22, 2009
The U.S. Treasury and the Federal Reserve unveiled a set of curbs and rules for executive compensation at U.S. banks that mark a watershed moment for government intervention in the private sector.
The Fed is proposing that it more aggressively regulate compensation practices at U.S. American banks under its control. The central bank "is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system," Fed Chairman Ben Bernanke said Thursday.
The policies would become part of the supervisory process, the Fed said, noting large, complex organizations would face special "horizontal" reviews that compare one bank's pay practices with those of its peers.
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Oct. 21, 2009, 12:45 p.m. EDT
By Laura Mandaro & Nick Godt, MarketWatch
SAN FRANCISCO (MarketWatch) -- Gold futures turned higher Wednesday as the U.S. dollar slid to a fresh 14-month low against the euro, breaching a key psychological level and making hard assets more attractive.
Gold for December delivery rose $1.60 an ounce, or 0.2%, to $1,060.10 an ounce. The thinly traded October contract gained $2.40 an ounce, or 0.2%, to $1,060.2.
Bullion had slipped in early U.S. trading as the dollar was only modestly lower.
But the greenback, which has been the dominant force in precious metals
trading recently, deepened its slide as U.S. stocks headed higher.
Prominent in currency trading Wednesday, the euro rose to $1.50, a psychologically important level that Jon Nadler, a senior analyst with Kitco Bullion Dealers, said is a "pivot point that may force more language from policymakers" on the strong dollar. The level "has obviously been good for gold." See Currencies.
Other precious metals also turned higher. December silver tacked on 13 cents, or 0.67%, to $17.69 an ounce. January platinum, the most active contract for the metal, gained $15.70, or 1.2%, to $1,372 an ounce. December palladium rose $2.45, or 0.2%, to $340.10 an ounce.
Copper for December delivery gained 7 cents, or 2.2%, to nearly $3 a pound.
Also buoying metals, crude-oil futures rose to their highest level of the year, touching $80.70 a barrel, helped by a report of a smaller-than-expected build in U.S. inventories and the dollar's slump.
Last week, the benchmark gold contract gained 0.3% and briefly topped $1,070 an ounce, a new intraday high.
Ahead, the Fed will release its Beige Book of economic anecdotes from across the country at 2 p.m. Eastern.
"In the latest edition, the Beige Book noted that 'credit standards ranged from unchanged to tighter in most Districts,'" said Benjamin Reitzes, analyst at BMO Capital Markets, in a note.
"That assessment might improve with underlying financial conditions," he said. "Meantime, expect commercial real estate to remain a source of weakness across the country."
The S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,096, +4.50, +0.41%) rose 0.4% to 1,095.
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By Stephen Grocer
October 19, 2009The number of failed banks this year inch one closer to 100 Friday.
Regulators seized San Joaquin Bank, of Bakersfield, Calif., marking the 99th bank to fail this year and the 124th since 2008. San Joaquin Bank, which had $775 million in assets and five branches, was acquired by Citizens Business Bank of Ontario, Calif., in a government-brokered deal, according to the FDIC. The regulator said the failure is expected to cost the agency’s already-strained insurance fund approximately $103 million.
The deal marks only the fourth failure this month, a drop from the past three months. September, August, and July saw 11, 15 and 24 failures respectively.
Is the rate of bank failures slowing? Not yet, says FDIC chairman Sheila Bair. She told CNBC last week that she would need to see several more quarters of slowing failures before determining that the situation was improving. “Our projections are that bank failures will continue through 2010,” Bair said.
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By Jennifer Ablan and Joseph A. Giannone
Mon Oct 19, 2009 5:17pm EDT
NEW YORK, Oct 19 (Reuters) - David Einhorn, the hedge fund manager who had warned on Lehman Brothers' precarious finances, on Monday said he is buying gold and betting that interest rates will rise as he lambasted the U.S. government's financial chiefs for short-sighted policy decisions.
The exploding size of the national deficit, which reflects government policies that have simply rewarded bad behavior with massive bailouts, will make gold and gold stocks as well as call options on higher rates good investments, said Einhorn.
Speaking at the fifth Annual Value Investing Congress in New York, Einhorn had harsh criticism for Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner.
"Although our leaders ought to be making some serious choices, they appear too trapped in short-termism and special interests to make them," he said, calling Bernanke and Geithner "quintessential short-term decision makers.
"They explicitly do whatever it takes to solve one problem at a time and deal with the unintendend consequences later."
Einhorn, the president of Greenlight Capital, with more than $5 billion in assets under management, advocated buying both physical gold and gold stocks "if monetary and fiscal policies go awry."
He noted, "Gold does well when monetary and fiscal policies are poor and does poorly when they are sensible."
Gold rose to a record high last Wednesday above $1,070 an ounce.
Of the government's recent policies, he said, "Over the last couple of years, we have adopted a policy of private profits and socialized risks -- you are transferring many private obligations onto the national ledger."
According to a joint analysis by the Center on Budget and Policy Priorities, the Committee for Economic Development and the Concord Coalition, the projected U.S. budget deficit between 2004 and 2013 could grow from $1.4 trillion to $5 trillion.
Einhorn explained further why he favored investing in gold in the current economic and policy climate.
Last week, when Bernanke, Geithner and White House economic adviser Larry Summers spoke in interviews and on panel discussions, he said, "My instinct was to want to short the dollar, but then I looked at other major currencies -- euro, yen and British pound -- and they might be worse."
"Picking these currencies is like choosing my favorite dental procedure," he said. "And I decided holding gold is better than holding cash, especially now that both offer no yield."
THE WAY TO AVOID "TOO BIG TO FAIL"
Among structural issues that U.S. policymakers also need to address is avoiding another disaster of Lehman proportions, Einhorn said.
"The proper way to deal with too-big-to-fail or too-interconnected-to fail is to make sure that no institution is too bigger, interconnected to fail," he said.
The test, he said, should be that no institution is ever so individually important that if the U.S. were faced with its demise that the government would be forced to intervene.
"The real solution is to break up anything that fails that test," he said.
"The lesson of Lehman should not be that the government shouldn't have prevented their failure; the lesson of Lehman should be that Lehman should not have existed at a scale that would have allowed it to jeopardize the financial system," he said. "And the same logic applies to AIG (AIG.N), Fannie, Freddie, Bear Stearns, Citigroup (C.N) and probably a dozen of others."Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold
Einhorn bets on major currency 'death spiral'
Major institutions should be broken up if necessary, Greenlight manager says
By Alistair Barr, MarketWatch
Oct. 19, 2009, 2:39 p.m. EDT
NEW YORK (MarketWatch) -- Greenlight Capital is betting on the possibility of a major currency collapse and a surge in interest rates, the hedge-fund firm's manager David Einhorn said Monday, citing ballooning government deficits in some of the world's most developed countries.
Einhorn, who warned about Lehman Brothers' frailty before it collapsed last year, also said financial institutions that are deemed as "too big to fail," such as Citigroup Inc., should be broken up.
ReutersDavid Einhorn of Greenlight Capital.
Greenlight has been buying physical gold this year because Einhorn is concerned that efforts to save the financial system and fuel economic recovery are undermining the value of such currencies as the U.S. dollar.
On Monday, he said Greenlight has added new trades to this investment theme, buying long-dated options on much higher interest rates in Japan and other developed regions -- effectively giving the firm the chance to make big profits from a jump in rates. The options, bought from major banks, are tied to interest rates four to five years out, Einhorn noted.
"Japan may already be past the point of no return," he said during a presentation at the Value Investing Congress in New York.
'Lehman shouldn't have existed in any size to threaten the financial system.'
Japan's debt is equal to 190% of the country's gross domestic product and its government deficit will be 10% of GDP this year, according to Einhorn.
Japan has been able to borrow money at roughly 2% a year to finance these deficits, partly because the country has many savers willing to buy low-yielding government bonds. However, some of these savers may begin spending instead as they enter retirement, Einhorn argued.
"When the market refuses to refinance at cheap rates, problems emerge," he said, adding that this could trigger a "currency death spiral."
Interest rates have been very stable in Japan for years, so the options on higher rates that Greenlight bought were relatively cheap. Einhorn said the "asymmetry" of that trade was interesting: If rates were to jump suddenly in Japan, Greenlight stands to make "multiples" on its positions.
"There remains a possibility that I'm wrong, and I hope I am," he commented. But earlier in the speech he remarked: "Just because something hasn't happened before, that doesn't mean it won't."
Remedy to shore up system
Einhorn also compared potential problems in sovereign-debt markets to the financial crisis that engulfed markets last year.
When Lehman collapsed, investors reacted by dramatically increasing the cost of borrowing for rival Wall Street firms to the point where their business models were threatened, he Einhorn. The collapse of any major currency could have same impact of rerating the cost of financing governments in deficit.
Unlike Japan, the United States isn't past the point of no return, the fund manager stressed. However, he criticized financial-reform proposals pushed by Treasury Secretary Timothy Geithner, arguing they provide a government backstop for the largest institutions, entrenching them further.
No institution should be too big to fail, Einhorn contended. "The real solution is to break up anything that fails that test. Lehman shouldn't have existed in any size to threaten the financial system."
The same applies to Citigroup and Bear Stearns, which J.P. Mortgage Chase & Co. acquired, as well as American International Group Inc. and "dozens" of other firms, he said.
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By Moming Zhou, MarketWatch
NEW YORK (MarketWatch) -- Gold futures rose on Monday, as investors embraced more risk, pressuring the dollar, lifting stocks and helping crude-oil futures test new highs for the year above $79 a barrel.
Copper also gained more than 4% before giving back some gains after China estimated that its economy grew 9% in the third quarter.
Gold for December delivery, the most actively traded contract, rose
$2.60, or 0.2%, to $1,054.10 an ounce on the Comex division of the New
York Mercantile Exchange. The thinly traded October contract also
gained 0.3% to $1,053.50. . . .
The dollar, which has been used as a safe-haven currency, sank further, while the euro rose 0.2% to $1.4942. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 75.34, -0.30, -0.40%) lost 0.3% to 75.409. See Currencies.
A weaker dollar lifts the price of dollar-denominated commodities and heightens gold's appeal as a safe asset.
Crude-oil futures rose as much as $79.05 a barrel, a new high for the year. See Futures Movers.
Gold rose "with oil reaching a new high for the year above $79 a barrel, and the Federal Reserve signaling interest rates will stay near record lows for the foreseeable future, the beleaguered greenback fell to a 14-month low on the dollar index," said analysts at GoldCore in a note.
The dollar came under further pressure after the Federal Reserve Bank of New York clarified it has been testing reverse repurchase agreements for technical reasons, and that the tests should not be seen as hints of a tighter monetary policy. See full story.
Separately, Fed Chairman Ben Bernanke called for policy makers to watch
for the restrengthening of unsustainable global imbalances driven by
high levels of Asian exports and low U.S. savings rates as the global
economy rebounds. See full story.
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By Pham-Duy Nguyen
Oct. 19 (Bloomberg) -- Gold’s rally to a record means prices are still 53 percent below the 1980 inflation-adjusted peak.
While gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal’s value. Bullion hasn’t kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today’s dollars, that would be $2,287, according to the U.S. Labor Department’s inflation calculator.
Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year, and options show investors expect the rally to continue. When prices reached all-time highs, the contract with the most open interest was the December call to buy the metal at $1,200. The contract to purchase at $1,500 an ounce was the third biggest.
“Gold is not at any peak,” said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages $58.5 billion in mutual funds and brokerage accounts. “The world’s money supply has increased and gold hasn’t kept pace,” he said. “We’re now in a period where gold is catching up.”
The U.S. Dollar Index, which measures the currency against those of six major trading partners, fell on Oct. 15 to the lowest level in 14 months, and has dropped about 7 percent this year. President Barack Obama has increased the nation’s marketable debt 22 percent to $7.01 trillion to revive growth.
Preserving Value
Gold bulls say today’s record borrowing and low interest rates mean the government will have to accept faster inflation as the economy recovers. Investors buy bullion to preserve value during times of turmoil and economic stress.
Financial institutions worldwide have reported credit losses and writedowns of about $1.62 trillion since the start of 2007, when the credit crisis began. Group of 20 governments have pledged about $11.9 trillion to ease credit and revive economic growth, according to the International Monetary Fund.
“Gold is the hedge against currency devaluation,” John Brynjolfsson, of hedge fund Armored Wolf LLC, said in a Bloomberg Television interview from Aliso Viejo, California, on Oct. 7. He predicted bullion will top $2,000.
Banks have raised their gold estimates. On Oct. 9, JPMorgan Chase & Co. said the metal will average $1,006 an ounce next year, compared with an earlier projection of $950. Deutsche Bank AG forecast an average of $1,150, up 32 percent from its estimate in July. Barclays Capital said Oct. 12 that “prospects for a run at $1,500 should not be underestimated” next year.
Understated CPI
Gold would need to rise more than sixfold to top the 1980 record, using a more accurate inflation-adjustment, said John Williams, an economist and the editor of Berkeley, California- based Shadowstats.com. He said the government has understated the cost of living over the past two decades with adjustments in the way it measures the basket of goods and services monitored by the U.S. consumer price index, or CPI.
Gold futures for December delivery closed Oct. 16 at $1,051.50 an ounce on the New York Mercantile Exchange’s Comex division, gaining for a third straight week.
“If the methodologies of measuring inflation in 1980 had been kept intact, gold would have to hit $7,150 to be the equivalent of the 1980 record,” Williams said.
The cost of living in the U.S. rose 0.2 percent last month, the Labor Department said on Oct. 16. Compared with a year earlier, consumer prices fell 1.3 percent. The CPI will drop 0.5 percent this year, before rising 1.9 percent in 2010, reflected by the median estimates of 61 economists in a Bloomberg survey. Annual increases averaged 2.8 percent a year in the past decade.
Purchasing-Power Adjustment
In March 1980, inflation surged to a 14.8 percent annual rate, two months after gold capped a four-year rally. Adjusted for the decline in the dollar’s purchasing power since then, gold’s Oct. 14 record of $1,072 represents the equivalent of $409 in 1980 dollars, the Labor Department calculator shows.
Since January 1980, the average price of a pound of white bread has risen almost threefold, from about 50 cents to $1.38 in August, and medical care has surged more than fivefold, Labor Department figures show. Gasoline and electricity prices have more than doubled.
Today, the gap between gold’s spot price and its CPI- adjusted equivalent is the widest ever.
Gold hasn’t been as effective a hedge against inflation as oil since the 1980s, said Matt Zeman, of LaSalle Futures Group LLC in Chicago.
Oil Beats Gold
Crude passed its 1981 inflation-adjusted record two years ago. The cost of imported oil averaged $39 a barrel in February 1981, after Iran cut exports, according to the Energy Department. That’s $89 in 2007 dollars, the Labor Department calculator shows. Oil reached a record $147.27 on July 11, 2008, and closed at $78.53 on Oct. 16 in New York trading.
“If you bought gold in the 1980s, you’re still losing money today,” said Zeman, a metals trader. Gold prices in New York languished for two decades after declining from the 1980 record, dropping to a 20-year low of $253.20 on July 20, 1999.
While bulls say gold is cheap, the inflation-adjusted price is 15 percent above its 30-year average, Bloomberg data show.
The Federal Reserve may limit gains by raising interest rates before inflation balloons, analysts said. Fed Chairman Ben S. Bernanke said on Oct. 8 that policy makers will need to raise interest rates “at some point” to control inflation.
‘Prepared to Tighten’
“When the economic outlook has improved sufficiently, we will be prepared to tighten,” Bernanke said in remarks prepared for an Oct. 8 conference in Washington.
Fed moves to cool inflation and the government’s revenue needs will stop gold, according to Jon Nadler, a senior analyst for Montreal metals dealer and refiner Kitco Inc.
“These wild calls for several-thousand-dollar gold are typical of times when gold goes into uncharted territory,” Nadler said. “The Fed will pull the interest-rate trigger and the Obama administration will, in addition, pull the tax-hike trigger before we get into any serious inflation. Once the man on the street gets in, the gold rally is likely over.”
Gold held in exchange-traded funds climbed to records this month at Zuercher Kantonalbank and ETF Securities Ltd. Holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, are up 42 percent this year. Hedge funds and other large speculators hold their most-bullish position ever in gold futures. So-called net-long positions, or bets prices will rise, increased by 6 percent to 253,955 contracts in the week ended Oct. 13, according to the Commodity Futures Trading Commission.
Gold Producers
The Philadelphia Stock Exchange Gold & Silver Index jumped 43 percent this year, as Phoenix-based Freeport-McMoRan Copper & Gold Inc. tripled. Toronto-based Barrick Gold Corp., the world’s largest producer, fell 10 percent. Barrick said Sept. 8 it will record $5.6 billion in third-quarter costs to eliminate fixed- price contracts as the company bets gold’s value will climb.
At Jersey, Channel Islands-based GoldMoney.com, which held $759 million of gold and silver for investors as of Sept. 30, founder James Turk said bullion can climb eightfold based on the historical relationship between the metal and the Dow Jones Industrial Average. The Dow is up 10-fold since January 1980.
Gold and the Dow, which has gained 14 percent this year to 9,995.91, were at about the same level during the Great Depression and the early 1980s, he said. On Jan. 21, 1980, as gold futures surged to $873, the Dow slipped to 946.25.
“The dollar is constantly being debased and inflated,” Turk said. “By 2013, gold is going to be at $8,000 and the Dow will be at 8,000.”
Gold-Dollar Link
Deutsche Bank said early this month that the dollar will fall to $1.60 per euro next year, a drop of 7.3 percent from last week, because of “rising fiscal deficits and loose monetary policy.”
Gold has moved in the opposite direction of the dollar over most of the past decade. The metal’s correlation coefficient to the U.S. Dollar Index is minus 0.8539, Bloomberg data show. A correlation of minus 1 indicates two assets move inversely to each other, while a 1 would show they move in tandem. A reading of zero shows no correlation.
Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey, says he expects gold to trade at $1,250 by year-end.
“Gold has been pushing higher because it’s no longer just
a hedge against commodity inflation, it’s also a hedge against a
change in world-monetary standards.”
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What's happening to the dollar? That's the question dominating the world's financial markets. Last week the US currency fell, on a trade-weighted basis, to a fresh 14-month low. The dollar's decline is now gaining momentum.
By Liam HalliganPublished: 7:22PM BST 10 Oct 2009
Many American economists say the greenback is falling because the global economy is recovering – so investors no longer need the dollar as a "safe haven".
That's nonsense. The reality is that "safe haven" status has shifted away from the dollar and towards tangible assets that the US government can't debauch by printing more of them. That's why gold just hit a fresh all-time high of well over $1,000 per ounce. That's why commodity-backed currencies like the Australian dollar are now soaring – causing howls of protest from Aussie exporters. Meanwhile, global investors are quitting the US currency because they're worried it's a sinking ship.
It's hard to disagree. America is still running a current account deficit equal to almost 3pc of national income. In a single month over the summer, the gap between America's imports and exports widened no less than 16pc.
America's external imbalance remains sizeable in part because the country is the world's biggest oil importer. When crude prices rise, Uncle Sam's trade deficit increases, which, in turn, pushes down on the dollar.
As every financial analyst knows, a falling dollar means rising oil as the black stuff is priced in US currency. But the relationship also operates in reverse. When oil strengthens, the dollar tends to weaken as America's trade deficit suffers. Crude is now more than 50pc above its mid-February low – ergo, a weaker dollar.
The dollar is also falling because that's what the White House wants. "It's important America continues to have a strong currency," said US Treasury Secretary Timothy Geithner last week. "We've made clear our commitment to a strong dollar," added Larry Summers, the Head of President Obama's National Economic Council.
These men insult our intelligence. The US government desperately wants a weaker dollar – so boosting exports while lowering the value of America's massive foreign debt. The currency markets will keep betting against the greenback as they know the Federal Reserve will do nothing to stop a weaker dollar coming true. "Benign currency neglect" is the cornerstone of Obama's recovery strategy.
The danger is, though, that "the rope slips" and steady decline turns into nosedive. If the dollar did tip into free fall, US inflation would soar and interest rates would skyrocket – whatever the Fed now says. The world's largest economy would then face "stagflation" – the nightmare combination of recession and high inflation.
This danger is very real, not least because the rest of the world is seriously concerned at America's wildly expansionary fiscal and monetary policy. That's the fundamental reason the dollar is falling.
Just over a year ago, America's monetary base was equal to 6pc of national income. Now, after a year of money printing, it's 12pc. The US has expanded its basic money supply by a staggering 108pc in 12 months. No wonder the currency markets are alarmed about future US inflation. No wonder there is a widespread assumption so-called "quantitative easing" – or QE – will continue, funding yet more bank bailouts and other forms of wasteful government spending.
On top of all this, we must now add "carry trade" pressures. As this column pointed out last month, investors are using low Fed rates to take out inexpensive dollar loans, then converting the money into higher-yielding currencies. "Carrying" credit in this way is flooding the world with cheap dollars – pushing the greenback down even more.
There are broader reasons for the dollar's demise – not least that the sun is now setting on its reserve currency status, as the world's commercial centre of gravity shifts towards the emerging giants of the East. That's a much longer-term trend, though. In the here and now, the dollar is tumbling due to America's ultra-low interest rates, monetary incontinence and fiscal irresponsibility.
The decline became so steep last week that central banks in Asia – including China – spent their own reserves propping up the US currency, so worried were they about the impact of the falling dollar on their all-important exports. Future historians will shake their heads in disbelief.
Keep in mind, though, that the arguments pointing to a weaker dollar also apply to the pound – but even more so. Last week sterling hit a trade-weighted five-month low. Over the last year, the pound has, well, been pounded – losing significant ground against the yen and euro, as well as the ailing dollar.
Like the US, Britain has indulged in grotesque money-printing antics. The two
countries might be dubbed the QE2. But the Bank of England's printing
presses really have been in overdrive, with the UK's monetary base now equal
to almost a fifth of GDP, up a head-spinning 169pc in a single year.
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By Glenys Sim
Oct. 7 (Bloomberg) -- Investors should hold onto long positions in gold as bullion has “significant upside potential” to reach as high as $1,500 an ounce, Barclays Capital said, citing trading patterns.
“Having rallied ‘off the charts’, we are left to resort to projections and extrapolated trendlines to forecast where the move might stop,” Jordan Kotick, global head of technical analysis at Barclays Capital, wrote in a note e-mailed today.
So-called trendlines are used to determine momentum and are found by connecting an asset’s high prices and low prices over a given period to form a channel.
“Channel resistance currently is at $1,370; history suggests a run at $1,500,” Kotick wrote. “Taking it a step at a time, in the coming weeks, we view consolidation above $1,020 as extremely positive, targeting $1,050 initially, and $1,120,” he added.
Gold for immediate delivery gained as much as 2.6 percent to a record $1,043.78 an ounce yesterday, and traded at $1,038.46 at 10:35 a.m. in Singapore.
“We suspect the rally is wave 3 of 5, indicating an eventual push toward the $1,120 area and potentially beyond into year end,” wrote Kotick, referring to the Elliott Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back.
“Initial resistance is found in the $1,050 area but that is way too conservative given the springboard that a wide 18- month range provides,” he added.
Not Unstoppable
To be sure, when compared against the major currencies, it’s clear that the gold rally is “by no means unstoppable, as none of the charts show prices concurrently pressing against their respective all-time highs,” Kotick said.
Gold priced in euros, pounds, South African rand, Australia and New Zealand dollars hit records in February as investors turned to bullion as a hedge against weakening currencies. Gold reached a peak of 783.87 euros and 692.66 pounds on Feb. 18.
“Against sterling, gold is making great strides, and
against the euro it is breaking higher out of range, but against
the yen it is holding in a well-defined range,” said Kotick.
“These charts speak volumes: as much about currency perceptions
as the value of gold.”
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By Pham-Duy Nguyen and Nicholas Larkin
Oct. 13 (Bloomberg) -- Gold futures rose to a record as the slumping dollar spurred demand for the precious metal as an alternative asset.
The metal is on course for a ninth straight annual gain. This year, gold has gained 20 percent. Today, the price reached a record $1,069.70 an ounce in New York, surpassing the previous high on Oct. 8. The dollar has dropped 6.6 percent in 2009 against a basket of six major currencies, touching a 14-month low.
“There’s lots of concern about the weakness in the dollar, and this has been driving gold,” said Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany.
Gold futures for December delivery gained $3.50, or 0.3 percent, to $1,061 at 11:05 a.m. on the Comex division of the New York Mercantile Exchange.
The metal may benefit as central banks worldwide diversify away from the dollar, analysts said. Nations reporting currency holdings put 63 percent of the new cash into euros and yen in April, May and June, Barclays Capital data show. China in April said it purchased 454 metric tons of gold from 2003 to 2009, according to data from the producer-funded World Gold Council.
China has the sixth-largest gold holdings, after the U.S., Germany, the International Monetary Fund, Italy and France. Only 1.9 percent of China’s foreign-currency reserves are in gold.
“The tremendous perception that the dollar will continue to weaken is going to drive gold higher,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “China is nervous and continues to be nervous about the dollar.”
Record U.S. Debt
President Barack Obama has increased U.S. marketable debt to a record as he borrows to reignite economic growth. That has boosted speculation that increased money supply will debase the currency and spur inflation.
The Federal Reserve has cut its main interest rate almost to zero and backed asset purchases and credit programs to combat the recession. Chairman Ben S. Bernanke is leading plans to buy mortgage-backed securities, federal agency debt and Treasuries.
“The fear that central bank exit strategies will come too late to prevent inflation is giving support to gold,” Fertig of Quantitative Commodity Research said.
U.S. consumer prices will increase 1 percent this quarter and 1.9 percent and 1.8 percent in the following two quarters, respectively, according to the median estimate of 66 economists surveyed by Bloomberg.
Crude-oil futures, used by some investors as an inflation guide, rose today to the highest in seven weeks. The price has jumped 65 percent this year.
Gold will trade at $1,025 an ounce in the next three months, up from a previous forecast of $950, Citigroup Inc. said in a report, citing increased demand and the sliding dollar. The bank raised its estimate for the coming six to 12 months to $1,050, from $975.
“There is less obvious support for the current price from
the fundamentals of supply and demand, excluding investment,”
Citigroup said. “Mine supply has recently been sufficient to
meet all fabrication demand. Excess demand for gold must
therefore be supported by investors.”
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Oct. 12 (Bloomberg) -- Central banks flush with record reserves are
increasingly snubbing dollars in favor of euros and yen, further
pressuring the greenback after its biggest two- quarter rout in almost
two decades. Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.
World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.
“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”
Sliding Share
The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.
America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, at 76.104 today, is within six points of its record low reached in March 2008.
Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness.
Toyota’s ‘Pain’
Yukitoshi Funo, executive vice president of Toyota City, Japan-based Toyota Motor Corp., the nation’s biggest automaker, called the yen’s strength “painful.” Fabrice Bregier, chief operating officer of Toulouse, France-based Airbus SAS, the world’s largest commercial planemaker, said on Oct. 8 the euro’s 11 percent rise since April was “challenging.”
The economies of both Japan and Europe depend on exports that get more expensive whenever the greenback slumps. European Central Bank President Jean-Claude Trichet said in Venice on Oct. 8 that U.S. policy makers’ preference for a strong dollar is “extremely important in the present circumstances.”
“Major reserve-currency issuing countries should take into account and balance the implications of their monetary policies for both their own economies and the world economy with a view to upholding stability of international financial markets,” China President Hu Jintao told the Group of 20 leaders in Pittsburgh on Sept. 25, according to an English translation of his prepared remarks. China is America’s largest creditor.
Dollar’s Weighting
Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.
That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002.
“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”
Central banks’ moves away from the dollar are a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according to Christoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany.
‘Flush’ With Dollars
“The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.”
The median forecast in a Bloomberg survey of 54 economists is for the Fed to lift its target rate for overnight loans between banks to 1.25 percent by the end of 2010. The European Central Bank will boost its benchmark a half percentage point to 1.5 percent, a separate poll shows.
America’s economy will grow 2.4 percent in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in Japan, median predictions show. Japan is seen keeping its rate at 0.1 percent through 2010.
Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse Group AG. Morgan Stanley says the yen is 10 percent overvalued.
Reminders of 1995
Sentiment toward the dollar reminds John Taylor, chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose.
The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital.
“People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.”
Dollar Forecasts
The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen, from 89.97 today.
Englander at London-based Barclays, the world’s third- largest foreign-exchange trader, predicts the U.S. currency will weaken 3.3 percent against the euro to $1.52 in three months. He advised in March, when the dollar peaked this year, to sell the currency. Standard Chartered, the most accurate dollar-euro forecaster in Bloomberg surveys for the six quarters that ended June 30, sees the greenback declining to $1.55 by year-end.
The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II.
Lagging Behind
Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.
Treasuries have lost 2.4 percent, after reinvested interest, versus a return of 27.4 percent in emerging economies’ dollar- denominated bonds, Merrill Lynch & Co. indexes show.
The growth of global reserves is accelerating, with Taiwan’s and South Korea’s, the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India.
China, which controlled $2.1 trillion in foreign reserves as of June 30 and owns $800 billion of U.S. debt, is among the countries that don’t report allocations.
“Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said.
Follow the Money
Englander’s conclusions are based on IMF data from central banks that report their currency allocations, which account for 63 percent of total global reserves. Barclays adjusted the IMF data for changes in exchange rates after the reserves were amassed to get an accurate snapshot of allocations at the time they were acquired.
Investors can make money by following central banks’ moves, according to Barclays, which created a trading model that flashes signals to buy or sell the dollar based on global reserve shifts and other variables. Each trade triggered by the system has average returns of more than 1 percent.
Bill Gross, who runs the $186 billion Pimco Total Return Fund, the world’s largest bond fund, said in June that dollar investors should diversify before central banks do the same on concern that the U.S.’s budget deficit will deepen.
“The world is changing, and the dollar is losing its status,” said Aletti Gestielle’s Fiorini. “If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.”
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NEW YORK, Oct 8, 2009 (Reuters) - U.S. gold futures rose to
record highs for a third straight day on Thursday as a bearish
outlook for the U.S. currency prompted investors to buy the
metal as a hedge against losses in dollar-denominated assets.
For the latest detailed report, click on [GOL/].
GOLD
* Most-active December gold futures GCZ9 up $6.30 at
$1,050.70 an ounce at 10:58 p.m. EDT (1458 GMT) on the COMEX
division of the New York Mercantile Exchange.
* Ranging from $1,043.80 to $1,059.60 - a new record high.
* Gold continued to closely track currency market
movements.
* The dollar fell broadly on Thursday as rising equity
markets fueled demand for riskier assets at the expense of the
safe-haven U.S. currency.
* The euro rose to session highs against the dollar as
European Central Bank President Jean-Claude Trichet's comments,
after the ECB left interest rates unchanged at a record low of
1 percent.
* Cheap interest rates make it easy to buy gold for
investors, as they prepare for possible future inflation -
George Gero, vice president of RBC Capital Markets Global
Futures.
* Demand for gold-backed exchange-traded funds climbed,
with the largest, New York's SPDR Gold Trust GLD, reporting a
fourth straight day of inflows on Tuesday. [GOL/SPDR]
* Investors in SPDR Gold Trust bought nearly 14 tonnes of
gold, lifting its holdings 1.3 percent, in the week to
Tuesday. XAUEXT-NYS-TT
* Oil prices rose about $1.50 to $71 a barrel.
* Gold-to-oil ratio at 14.79, up from the previous
session's 14.72.
* COMEX estimated 10 a.m. volume at 114,315 lots.
* Spot gold was at $1,048.30 an ounce, against its previous
finish of $1,043.70 quoted late in New York.
* London afternoon gold fix XAUFIX= was at $1,045.
SILVER
* December silver SIZ9 up 22 cents, or 1.3 percent, at
$17.725 an ounce, up with gold.
* Ranged from $17.530 to $17.930, the highest price since
August 2008.
* COMEX estimated 10 a.m. volume at 21,360 lots.
* Spot silver XAG= was at $17.68, versus its previous
finish of 17.55 an ounce.
* London silver fix XAGFIX= at $17.80 an ounce.
PLATINUM
* January platinum PLF0 up $16.30, or 1.2 percent, at
$1,344 an ounce on improving physical demand.
* Better jewelry buying supported platinum group metals -
Gero.
* Spot platinum XPT= was at $1,333.50, compared with its
previous finish of $1,326.
PALLADIUM
* December palladium PAZ9 up $4.95, or 1.6 percent, at
$319 an ounce, up with platinum.
* Spot palladium XPD= was at $314.50, against its
previous close of $311.
Prices at 10:58 a.m. EDT (1458 GMT)
Last Change Pct 2008 YTD
Chg Close % Chg
US gold GCZ9 1050.70 6.30 0.6 884.30 18.8
US silver SIZ9 17.750 0.250 1.4 11.295 57.1
US platinum PLF0 1342.00 14.30 1.1 941.50 42.5
US palladium PAZ9 319.00 4.95 1.6 188.70 69.1
Gold XAU= 1049.45 5.75 0.6 878.20 19.5
Silver XAG= 17.72 0.17 1.0 11.30 56.8
Platinum XPT= 1335.00 9.00 0.7 924.50 44.4
Palladium XPD= 315.50 4.50 1.4 184.50 71.0
Gold Fix XAUFIX= 1045.00 -9.75 -0.9 836.50 24.9
Silver Fix XAGFIX= 17.80 40.00 2.3 14.76 20.6
Platinum Fix XPTFIX= 1335.00 1.00 0.1 1529.00 -12.7
Palladium Fix XPDFIX= 317.50 1.50 0.5 365.00 -13.0
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Posted: 08 Oct 2009 02:31 PM PDT
2009 American Gold Eagles
While
collectors seem to have been most disappointed by the cancellation of
the collectible Silver Eagle products, the collectible 2009 Gold Eagles
will be missed as well.The situation for the American Gold Eagle is similar to that described for the Silver Eagle. Gold Eagle bullion coins were first suspended in August 2008 and then resumed two weeks later on a rationed basis. Later that year, the US Mint announced that they would be restricting bullion production to one ounce coins only.
In early 2009, the US Mint officially announced the suspension of collectible proof and uncirculated Gold Eagles until sufficient inventories of gold blanks could be acquired. The rationing of bullion coins was lifted in June 2008.
This week, the US Mint announced that all 2009 Proof Gold Eagles were canceled. This includes 1 oz, 1/2 oz, 1/4 oz, 1/10 oz coins, and a 4 Coin Set. The previously planned collectible one ounce 2008-W Uncirculated Gold Eagle was also canceled. Fractional collectible uncirculated coins had previously been announced as discontinued in the prior year.
As part of this week's announcement, the US Mint did indicate that they would finally offer fractional weight Gold Eagle bullion coins. This comes after more than a year of producing only one ounce bullion. The fractional coins will be available starting on December 3. Since these are bullion coins, they will not be sold directly by the US Mint, but distributed through their network of authorized bullion dealers.
The 2009 Gold Eagle one ounce bullion coin, which has been on sale throughout the year, has sold 982,000 coins to date. This is still less than half of the record sales of 2,055,000 ounces of gold bullion sold by the US Mint in 1999.
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Oct. 7, 2009, 1:57 p.m. EDT
NEW YORK (MarketWatch) -- Gold futures soared to a record high just below $1,050 an ounce Wednesday, as investment demand rose and as the U.S. dollar remained relatively weak.
Holdings in the SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld (GLD 102.33, +0.05, +0.05%) , the biggest exchange-traded fund backed by gold, rose for a third straight session to reach the highest level in three weeks.
'Gold has significant upside potential into 2010.'
Jason Kotick, Barclays Capital
In foreign-exchange dealings, the dollar rebounded slightly against the euro and the Japanese yen, but the dollar index /quotes/comstock/11j!i:dxy0 (DXY 76.51, +0.17, +0.23%) remained below the 77 mark.
Gold for October delivery surged to an intraday high of $1,048.20 an ounce, a new record for front-month gold futures. The contract was last up $3.90, or 0.4%, at $1,042.50 an ounce on the Comex division of the New York Mercantile Exchange.
Gold prices, as gauged by Comex front-month futures, have risen 18% this year.
Gold for December delivery, the most actively traded contract, gained $3.10, or 0.3%, to $1,042.70, a partial retracement after hitting an intraday high of $1,049.70.
"Gold has significant upside potential into 2010," said Jordan Kotick, an analyst at Barclays Capital, in a note. Technical analysis indicated that "resistance currently is at $1,370; history suggests a run at $1,500."
In the coming weeks, gold is likely to rise as high as $1,120 an ounce, he added. . . .
"The prime driver of the recent rally in the gold price ... was the weakening of the U.S. dollar," wrote analysts at Nomura International in a note to clients.
There is a very strong inverse relationship between the U.S. dollar and gold prices. When the dollar falls, gold prices tend to rise.
Gold's Wednesday highs topped the earlier record hit on Tuesday, when
the dollar slumped on a report suggesting the end of dollar-based oil
trading and as Australia hiked interest rates.
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.
In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading
Tuesday, 6 October 2009
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
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Melinda Peer
10.06.09, 05:30 PM EDT
Gold set a new record, and analysts expect it to set a few more as the dollar falters.
Gold hit fresh highs on Tuesday as it continued to take its cues from a weak U.S. dollar. The greenback tumbled as uncertainty over its global strength was triggered by a report from the U.K. alleging that certain Gulf states secretly met with Russia, China, Japan and France to discuss replacing the dollar with a basket of currencies to trade crude oil. The basket would include gold in addition to the euro, Chinese yuan, Japanese yen and a new currency for nations in the Gulf Cooperation Council, according an article The Independent that was later denied by the Gulf States. (See "Dollar Still A Good Bet For Oil.")
Comex
gold for December delivery peaked at $1,045 an ounce, surpassing the
previous record for the most-active contract high of $1,033.90 an ounce
hit in March 2008. December futures closed Tuesday's session at a
record $1,039.70 an ounce, up by $21.90. The SPDR Gold Trust
(
GLD -
news
-
people
) exchange-traded fund gained $2.28, or 2.3%, to $102.10 and shares of gold miners also traded higher.
Rick de los Reyes, a metals and mining analyst at T. Rowe Price, believes the gold rally still has a long run ahead of it. Pointing to similar trends observed during the gold rally that started in the late 1970's, he said gold prices are in the early stages of a transition of being driven more by investment demand than by jewelry demand. Since investment demand is likely to remain strong with the market worried about inflation and investors buying on pullbacks, Reyes sees gold reaching new highs in the long-term.
While other commodities like oil and copper also guard against inflation and may have more room to grow, gold is the only commodity to offer additional protection against deflation.
"Other commodities will protect against inflation, if that ends of being the outcome of monetary policy, as expected," Reyes said, "But if policies fail and deflation ends up being the problem, then those other commodities will suffer, too, since they tend to run on industrial demand."
Whether investors buy gold bars, gold-backed exchange-traded funds or gold mining companies, Reyes recommends that all portfolios include some exposure to gold since it trades negative to the market in some periods.
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By Nick Godt
Oct. 6, 2009, 2:19 p.m. EDT
NEW YORK (MarketWatch) -- Gold finished at a new record closing level on Tuesday, after earlier hitting a record intra-day high of $1,045 an ounce, as the dollar slumped on a report suggesting the end of dollar-based oil trading and Australia hiked interest rates. Gold for December delivery gained $21.90, or 2.2%, to end at $1,039.70 an ounce, a new record closing level. It earlier reached a high of $1,045.0 an ounce, topping the previous record of $1,033.90 in March 2008.
