Gold Rises to 27-Year High on Weak Dollar, Inflation Concerns

Discussion in 'Wall St. News' started by S2007S, Sep 20, 2007.

  1. S2007S




    Gold Rises to 27-Year High on Weak Dollar, Inflation Concerns

    By Pham-Duy Nguyen and Claudia Carpenter

    Sept. 20 (Bloomberg) -- Gold rose to a 27-year high as the dollar fell to a record low against the euro and the spread between two- and 10-year U.S. Treasuries widened, fueling demand for the metal as an inflation hedge. Silver also climbed.

    Gold is up 16 percent for the year, heading for its seventh straight annual gain. The yield spread on Treasuries widened to the most since May 2005 on speculation a plunge in the U.S. currency and the Federal Reserve's first interest-rate cut in four years will spark inflation.

    ``When the bond markets and currency markets move, it is a shout rather than a whisper to the gold market,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``The Fed has thrown in the towel in its fight against inflation.''

    Gold futures for December delivery rose $10.40, or 1.4 percent, to $739.90 an ounce on the Comex division of the New York Mercantile Exchange. Gold futures earlier rose to $746.50, the highest for a most-active contract since Jan. 22, 1980, the day after the metal reached a record $873 an ounce.

    In London, gold for immediate delivery gained $12.05, or 1.7 percent, to $733.45 an ounce. The record was $850 an ounce on Jan. 21, 1980.

    The euro reached an all-time high of $1.4098, the highest since the 13-nation currency began trading in 1999. The New York Board of Trade's dollar index comparing the U.S. currency against its six primary peers, including the euro and yen, touched 78.450, the lowest since September 1992.

    Lower Rates

    Expectations that the Fed will continue to reduce interest rates will hurt the dollar and bolster gold, analysts said. Five of the past six bear markets for the U.S. currency have rallied gold prices. The Fed cut its benchmark interest rate on Sept. 18 by half a percentage point to 4.75 percent, the first reduction since 2003.

    ``The rate cut is killing the dollar,'' said Tom Winmill, president of Midas Management Corp. in New York. ``If the Fed has to cut interest rates again, gold could take off to $1,000.''

    Credit Suisse Group, Switzerland's second-biggest bank, raised its 12-month forecast for gold to a range of $730 to $770 an ounce, from a previous forecast of $670 to $720, according a report yesterday by Tobias Merath, head of commodity research. Barclays Capital said gold may average $750 in the fourth quarter, up from the London-based company's previous forecast of $645.

    Inflation Expectations

    Investors are buying gold to hedge against accelerating prices after yields on 10-year notes rose faster than those on two-year notes. Long-term notes are more sensitive to inflation expectations than short-term notes, which are more responsive to changes to monetary policy.

    Fifteen of the 19 commodities on the Reuters/Jefferies CRB Index rose today. Oil futures rose to $83.34 a barrel, the highest since trading began in 1983.

    Investors concerned that the collapse of subprime mortgages in the U.S. will worsen are turning to gold as a haven, analysts said. Federal Reserve Chairman Ben S. Bernanke told lawmakers today that the central bank is ``actively working'' to avoid a repeat of the subprime-mortgage rout.

    Some banking customers of Northern Rock Plc, bailed out by the Bank of England, have withdrawn money and put it into gold, said Mark O'Byrne, managing director of Dublin-based brokerage Gold & Silver Investments Ltd.

    Liquidity Concerns

    ``Gold appears to be moving on a liquidity concern, and it's a question of where do you put your money?'' US Gold Corp. Chief Executive Officer Rob McEwen said. ``What's guaranteed? Other than Treasury bills, there's no other safe place to put your money right now.''

    Barrick Gold Corp., the world's biggest gold producer, is forecasting a 10 percent to 15 percent decline in global gold mine production in the next five to seven years. Mine supply last year fell to a 10-year low.

    World investment demand will be 306 metric tons in the second half, compared with purchases of 10 tons in the first six months of 2007, London-based research company GFMS Ltd. forecast last week.

    The StreetTracks Gold Trust, an exchange-traded fund backed by bullion, has risen 14 percent in the past month to a record 577 metric tons.

    Silver, which has lagged behind gold this year after gaining 46 percent in 2006, may soar as bullion becomes more expensive, some analysts said. Gold rose 23 percent last year.

    ``Silver can come roaring back,'' said Winmill of Midas.

    Silver futures for December delivery jumped 36.5 cents, or 2.8 percent, to $13.47 an ounce. The metal is up 4.1 percent this year.

    Some investors may sell gold after the 14-day relative strength index topped 80 today, analysts said. The index hasn't been above 80 since May 2006, when gold rose to a then 26-year high of $732. A climb above 70 is a signal to technical traders that prices are poised to fall.
  2. I feel foolish not holding onto my silver (SLV). There is no excuse to sell off silver, gold, etc...let it ride. It's like the early 80's all over again. My dollars are worthless.:(
  3. I have a load of silver. But I've been waiting for the catchup. So far it's not happened. :(