Gold Surpasses $1,000 on Fears of Inflation

Fears fomented by long-term inflationary concerns over President Obama’s huge stimulus package drove investors to gold as a hedge against likely devaluation of the U.S. dollar.

Historically, the price of gold has been intimately wed to the value of the U.S. dollar. This was not difficult to predict. As the dollar loses value, gold gains it. It’s a time-honored maxim, set into motion when about a century ago, on March 14, 1900, the U.S. government passed the Gold Standard Act.

The Gold Standard Act Stated:

“…the dollar consisting of twenty-five and eight-tenths grains (1.67 g) of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard…”

Back then, the price of gold was set at only $20.67 per ounce (48.38 times less than $1,000)!

This week’s stock market free fall has not helped matters either, with the Dow Jones shedding another $152 of muscle today, bringing the value, as I write this, to $7,313.74.

“There really is no other place to go,” says Leonard Kaplan, president of Prospector Asset Management. “People are scared.”

When falling house prices, stock market crashes, unemployment rates, recession, high deficits, fear of inflation, and the fact that the near future is unknown, tangible assets (not abstract investments) flourish.

Gold should continue to be a safe, hedge investment for the forseeable future. But if the recently passed stimulus package and the upcoming bail out impregnates our economy with Obama’s campaign-trail promise of “new hope”, be prepared to re-evaluate your gold holdings: life and the economy with it, can again experience a vast paradigm shift.

Gold: Near Record High and Potential to Reset

The price of gold continues to climb this month, as investors fears continue to drag on the American dollar.   The price stood at $950 per ounce last week, as the U.S. President Barack Obama pleaded and actually sort of bullied Congress to take action on his Stimulus plan.  The “safe haven” appeal of gold continues to draw investors in.

Stocks, meantime, along with crude oil futures, both continued to flounder as investors found nothing reassuring about the economy.  The U.S. government’s retail sales figures came in for the month of January and were better than expected, but in spite of that the stock market continued to lose ground.

Most analysts are now predicting that the price of gold will rise above $1000 per ounce sometime this year.  For the price to be as high as it is, in mid-February, is almost stunning.  Holdings in the largest gold exchange-traded fund hit a new record, rising above 900 tons last week.  These numbers mean investors are frightened and finding nothing to be calm about.

There are now new questions and numbers being bandied about with speculation about how high it could go.  “Prospects for $1,200 to $1,300 gold by the end of the third quarter remain underpinned by a set of cogent fundamental variables involving currencies, interest rates, and the global economy,” said Ashraf Laidi, who is the chief market strategist at London-based CMC markets.

Again, as we’ve been saying, whether you buy or sell in this market remains strictly a personal choice based on the economics of your backpocket and whether you are successful in retaining employment.  The government’s unemployment numbers were not encouraging either.  Although there was a slight dip in new claims filed, the number of continuing claims remains at a record high.

Gold remains a good investment for those who are ready to ride out the market.