Gold Predictions and Expectations

The price of gold shot up to the $1000 per ounce mark last week and I hope that rocketing upward was as exciting for you as it was for me.  I loved it.   Fun, fun, fun to watch and talk about and consider in reviewing the markets overall.

And then it fell today.  That’s kind of what precious metals do, isn’t it?  It’s a bit more stable than dollars and the rest of the markets, but since the price of gold is tied very closely to strength in the dollars, it’s a little like watching the waves roll in and out, isn’t it?

So what is it reacting to this week?   Gold has lost ground as the dollar gained and oil prices fell slightly, causing the ground underneath the yellow metal to give way just a little.   Did you see that report of a huge find by oil developers in the Gulf of Mexico last week?  That’s part of it.  If a bunch of smaller countries in Africa would stop fighting internally, they might also produce more oil, which might drive the price of oil down further, strengthen the dollar further, and lower the price of gold.

“Gold is in a modest consolidation stage, as the dollar rebounded, ” says Hwang Il Doo, senior trader with KEB Futures in Seoul, Korea.

Modest, indeed.  The price lurched upward to $1011.95 on September 11, but had dropped back to $1002.92 to open the following week.

Of course, many investors think “anything over $1000 is a good price to sell.”  And yet others believe that as unstable as the markets have been for the past year, this is a great time to buy.  Who is offering such advice?  Some fairly big name companies.

UBS AG told its investment clients to sell gold and silver, citing a jump in speculative buying of these precious metals.

“Considering the speed of the increase and on the absolute level of the net speculative position, we are cautious about the near-term outlook for the gold price, wrote John Reade, UBS analyst in a note.  “We recommend nimble investors take any profits on any long gold and silver positions, looking to re-enter after a correction.”

UBS is standing by its predicted price of $950 for September, but says it expects gold to rise sharply in 2010.   So perhaps buy now, and consider your position again in the coming year.

Good News for Gold Buyers: Prices Level Off

There is good news and bad in gold prices this week.  It all depends on your point of view and position in the gold market.

As we’ve discussed here several times, the price of gold is firmly tied to the strength of the U.S. dollar and what goes on in the American economy.  When the economy is strong, the price of gold is, well, lackluster.  When the American dollar is strong, the price can actually fall.

Hence in the last year or so, we’ve seen increases in gold prices that have surprised and delighted some people as they sold unwanted gold items and pieces that perhaps were out of style or for some other reason, no longer wanted or needed.

The per ounce price of gold was expected to top $1000 by sometime this coming Fall.  But it hit that mark a couple of months ago.  It seemed that investors were hungry for the stability provided by gold as the economy seemed to be rolling on waves that threatened to take us all under.  The more the future seemed to shake, the more gold came out of safes, jewelry boxes, and anywhere else it had been hidden to re-enter the market.

The price of gold hovered there for awhile, but then it plateau’d.   Investors seemed to be thinking things over.   As we waited and held our breath wondering what effect, if any, the new U.S. President and the economic team under his administration would have on the financial futures of millions of people.  What would they decide?

The polls show that President Barack Obama enjoys a personal approval rating of 67% and job approval at 61%, but that a majority of Americans do not approve of the way he handles federal spending.  51% disapprove.  And at 48%, which is a statistical “even split” (because all polls have a margin of error at “plus or minus 3-6%”), half the country doesn’t like the way he’s handling the U.S. budget deficit.

But in spite of that, and maybe because he promised on Monday to create 600,000 new jobs over the next 100 days, the dollar is holding strong and the price of gold is wavering.  Gold futures have now slid to a 2-week low, at $945.40 per ounce.

The economy is cyclical.  Gold prices are cyclical.   But overall, investments in the market as well as gold have grown in recent years.  So… is gold going up good news for you?