Is the Gold Rally Overheated?

Gold and the U.S. dollar are sitting on opposite ends of a seesaw and the dollar is dropping. Investors are finding that gold and related ETFs are prudent way to store wealth.

More investors are buying positions in gold for the long haul as gold prices have risen 21% for the year on a weak dollar and a surge in government debt, comments Goldbug for Gold News. Where gold is going is a matter of debate:

• Darren Heathcote, head of trading at the Australian section at Investec Bank, says investors are craving diversification and gold is becoming a popular avenue of investment.
• Citigroup (NYSE: C) recently put its stamp of approval on gold, announcing an increased six- to 12-month estimate for gold prices from $975/ounce to $1,025/ounce. The decision was based on a weakening U.S. dollar, increase in investor demand and diversification of the dollar reserves and portfolios.
• Historic trends show October to be a slow month for gold and some market observers project a drop in prices, writes Goldbug for Gold News. However, the depreciation of the dollar may continue and offset any sharp correction in gold prices.
• Adrian Koh, analyst at Phillip Futures, explains that a weak dollar invokes fears of inflation and investors are purchasing gold as a hedge. Without any sure changes in the fundamentals for the dollar, gold is likely to stay up.

Where gold ultimately goes is a question that can’t be answered, but investors can take matters into their own hands by protecting themselves with an entry strategy and a stop loss.

• SPDR Gold Shares (NYSEArca: GLD): up 19.5% year-to-date

• iShares COMEX Gold Trust (NYSEArca: IAU): up 19.5% year-to-date

• PowerShares DB Gold (NYSEArca: DGL): up 18% year-to-date

• ETFS Gold Trust (NYSEArca: SGOL): up 6.5% since inception

For full disclosure, Tom Lydon’s clients own shares of GLD.

Max Chen contributed to this article.

Comments

[Robert Cassidy:]

Support for the US dollar at current exchange value level is clearly unsustainable ...
.At the explosive increase in dollar supply floods the markets , a corresponding increase in the dollar price of nearly everything , gold included , is to be expected .
The US dollar is already a wasting asset , with interest yield far below real inflation rates

Oct 22 04:05 PM

[chux08:]

"Citigroup (NYSE: C) recently put its stamp of approval on gold, announcing an increased six- to 12-month estimate for gold prices from $975/ounce to $1,025/ounce. The decision was based on a weakening U.S. dollar, increase in investor demand and diversification of the dollar reserves and portfolios."


Hmmmm.....from one of their own too. No wonder they're going to go bankrupt. The Forces of the Dark-Side over at the FED can't be too happy about this!!! What's next?? Citi selling gold and silver bullion like some two bit bank in Canada??

Oct 23 12:23 AM

[The Recusant:]

chux08 -- Selling bullion "like some two bit bank in Canada" may not be a bad idea for the banks. Some do already. Chase banks sell Krugerrands and consider it an investment option. Shortly, everyone will consider it an investment necessity. The devalued dollar time-bomb is ticking.

Oct 23 03:18 PM