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Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., a boutique investment advisory firm based in San Antonio that manages domestic and offshore funds specializing in the natural resources and emerging markets sectors. The company’s no-load mutual funds include the... More
My business:
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Goldwatcher: Demystifying Gold Investing
  • $1,000 Gold - Can It Last? 1 comment
    Sep 14, 2009 03:41 PM
     Gold has cracked the $1,000-an-ounce barrier for a second time. The first time, in March 2008, the price fell back to three digits within a couple of days. What about this time?
     
    No one knows the answer to that question, but there are some plausible reasons why the gold price could stay higher longer this time around.
     
    The first reason is one that we’ve discussed before—we are now in what has historically been gold’s strongest season of the year. September is gold’s best month of the year in terms of month-over-month price appreciation, the key driver being jewelry makers stocking up for holiday buying in Asia, the Middle East and North America.
     
    A second reason relates to the weak dollar due to prolonged rock-bottom interest rates and massive deficits being piled up in the U.S. Gold and the dollar typically move in opposite directions, so a weak dollar tends to be good for gold. That inverse relationship is intact so far in September—the DXY dollar index has lost 2 percent of its value so far this month September and on Friday hit a 12-month low, and over the same period spot gold has risen about 6 percent.
     
    A third reason is rebounding interest in commodities overall. Prices for copper, zinc and other metals have seen strength recently. This isn’t surprising, given the growing signs of economic recovery and the dollar weakness.
     
    In addition to these factors, Barrick Gold has reportedly purchased more than 2 million ounces of gold and is expected to buy another 3 million ounces to cut its hedge position by more than half.
     
    Many are afraid that a global economic recovery will unleash inflation. Stimulus spending by the Federal Reserve and central banks around the world have added several trillion dollars to the global money supply. This will eventually erode the value of the dollar and other currencies.
     
    There is an opposing fear that all of the stimulus spending won’t be enough to get the global economy out of its sickbed. What happens then? The Fed and others have made it clear that their medicine will be more stimulus spending, which will further devalue paper currencies.
     
    Either way, gold has appeal.
     
    As long as the global economy is transmitting mixed signals, gold stands to benefit as an uncertainty hedge and a store of value. How long the price surpasses $1,000 remains to be seen, but this unusual convergence of factors creates favorable conditions for gold investors.

    All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The U.S. Trade Weighted Dollar Index (DXY) provides a general indication of the international value of the U.S. dollar. The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/09: Barrick Gold Corp.
    Themes: Gold
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This post has 1 comment:

  •  
    The GLD ETF has added to the demand for gold as an investible asset. I am not sure who is buying these ETFs and their investment reasoning (Speculative or Long term).
    Sep 14 04:08 PM | Link | Reply
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