Gold Set for 2-Year Low as Deflation Trumps Inflation (Update1)
Arizona Coin Collector
On the story below.
I find it hard to believed that gold prices will
Drop below $600.00 dollars and oz by the
End of the year. Given the fact that mining
Production of all base metals, silver and gold
Is dropping. One would think the price would
Remain high during a recession.
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FROM:
http://www.bloomberg.com/apps/news?pid=20601082&sid=aO19j3vI5FP8
Gold Set for 2-Year Low as Deflation
Trumps Inflation (Update1)
By Pham-Duy Nguyen
Nov. 3 (Bloomberg) -- Gold, the metal that rallied
during every U.S. recession in the past three
decades, may drop to a two-year low as the threat
of deflation curbs bullion's appeal.
The number of gold futures held in New York
plunged 48 percent since its Jan. 15 peak,
according to data compiled by Bloomberg. Prices
fell 17 percent last month to $724.55 an ounce
in London. The metal may drop to $600 by yearend
for the first time since 2006, said Joel Crane,
a Deutsche Bank AG strategist in New York.
While gold rose since 2000 as the world economy
expanded and the dollar weakened for five of the
past six years, the Reuters/Jefferies CRB Index
of 19 commodities lost 43 percent since reaching
its peak in July as the seizure in credit markets
caused economies around the world to slow and
the U.S. to contract 0.3 percent in the third
quarter. Rather than providing safety for
investors, gold declined almost 31 percent
since reaching a record $1,033.90 an ounce in
New York on March 17.
``Gold is not considered a safe haven because
investors are viewing it as part of the
commodity class,'' Crane said in an interview.
``Commodity is a bad word right now. Through
this whole credit crisis mess, cash has been
king.''
Deutsche Bank expects gold, down 13 percent this
year in London, to average $861 in 2008 and
$750 next year. UBS AG last week lowered its
2009 forecast to $700 from $825. Gold for
immediate delivery averaged $887.31 this year.
End of Rally
Gold rose about 220 percent this decade through
June as expanding economies, especially in
emerging markets, spurred demand for commodities
and increased risks of inflation. While the CRB
index rose more than 125 percent during that
period, the Standard & Poor's 500 Index fell 13
percent and the U.S. Dollar Index, which
measures the currency against six of its
biggest trading partners, weakened 29 percent.
Demand for gold waned amid speculation that U.S.
government efforts to rescue the banking system
and the Federal Reserve's decision to lower its
target interest rate for overnight loans between
banks to a 50-year low of 1 percent will help
the world's biggest economy recover faster than
Europe. The combination of falling commodities
and rising demand for dollar- based assets ended
gold's bull market.
Dennis Gartman, an economist and editor of the
Suffolk, Virginia-based Gartman Letter, exited
all his gold positions, except for coins he
purchased at the end of September. ``I feared
the whole financial system was coming to a halt,
and you need a little gold in that case,''
he said. ``I doubt it will anymore. But it sure
felt like it a month ago. There's no value in
gold right now.''
Gold Buyers
That hasn't stopped some investors from pouring
money into gold. The SPDR Gold Trust, the biggest
exchange-traded fund for the metal, climbed to a
record 770.6 tons on Oct. 10. A one- ounce
Krugerrand coin from South Africa cost almost
$29 an ounce more than the spot price of gold
Oct. 27, compared with a less- than-$5 premium
at the start of the year.
Zuercher Kantonalbank, which manages about
$107 billion in Zurich, said Oct. 15 that its
gold vault was full after a surge in demand.
``The wonderful thing about gold is that you
still have willing buyers,'' said Paul
Sutherland, chief investment officer for
Traverse City, Michigan-based Financial &
Investment Management Group, which manages
about $540 million and has 5 percent of its
assets in the metal. ``One of the first
things people will buy once they take their
heads out of the foxhole is gold. It can
take on a life of its own and go to
$1,000, $2,000.''
Commodity Slump
Gold in New York was the sixth-best performer
in the CRB Index. Nickel fell 54 percent and
oil dropped 29 percent. Only sugar and cocoa
are up for the year.
``Gold's being treated like any other asset
right now, it's deflating,'' said Ralph
Preston, a futures analyst at Heritage West
Futures in San Diego who had predicted a
rally to $1,150 by yearend. ``I'm exercising
patience and looking over a longer time
horizon for gold to regain, in the eyes of
the market, its status as a safe haven.''
While gold may drop as low as $600 next year
as investors raise cash to cover losses in
other markets, a record $1,500 an ounce is
likely in three years as central banks spend
more than $1 trillion to end the credit
crunch, setting the stage for faster
inflation, said Peter Tse, head of precious
metals trading at ScotiaMocatta in Hong Kong.
Gold for immediate delivery traded at $732.79
an ounce today at 4:37 p.m. in Singapore.
Revised Forecasts
Mario Innecco of MF Global U.K., who in March
expected gold at $1,200 by yearend, said the
range now is $850 to $950. ``All the Western
central banks have guaranteed the banking
system,'' Innecco said from London. ``The
cost is going to be higher inflation and
paper currencies will be worth less.''
In past recessions, investors found value
in gold. The metal gained 78 percent from
November 1973 to March 1975; 20 percent from
January to July 1980; 2.3 percent from July
1981 to November 1982; 1 percent from July
1990 to March 1991; and 2.7 percent from
March to November 2001.
For now, investors prefer paper. Foreign
accounts, including central banks, raised
their holdings of Treasuries to $1.6 trillion
in the week ended Oct. 29, up from $1.5
trillion at the start of the month, Federal
Reserve data show. U.S. debt returned 4.6
percent in 2008 and the dollar is up 15
percent against the euro, heading for the
biggest annual jump since the European
currency's debut in 1999.
``Under deflation, cash and highest-quality
bonds are the asset class of choice,''
said Marc Faber, publisher of the ``Gloom,
Boom & Doom Report.''
Deflationary Recession
Gold rallied 31 percent last year as the U.S.
inflation rate reached 4.1 percent, the
most since 1990. The threat of accelerating
prices moderated as commodities from oil
to corn to rice plunged from records in the
past four months. The Labor Department's
consumer price index was unchanged in
September after a 0.1 percent drop in August.
Commodities producers are among this year's
worst- performing U.S. stocks. The materials
group in the S&P 500 fell 40 percent this
year while the Philadelphia Stock Exchange
Gold & Silver Index of 16 mining companies
plunged to a five-year low on Oct. 24.
Toronto-based Barrick Gold Corp., the world's
largest producer, fell 29 percent on the
Toronto Stock Exchange in October, the worst
month in 21 years. Phoenix-based
Freeport- McMoRan Copper & Gold Inc.
plummeted 49 percent.
``We haven't had a deflationary recession
since the 1930s,'' said Leonard Kaplan,
president of Prospector Asset Management
in Evanston, Illinois. ``Equities will fall,
consumers will spend less, and demand for
commodities will just keep going lower.''
To contact the reporters on this
story: Pham-Duy Nguyen in Seattle at
Last Updated: November 3, 2008 03:43 EST
Jud
who predicted $2000 gold. Experts...HA!
Leo Marx
>
> Apparently its not the same experts that predict $600 gold as the ones
> who predicted $2000 gold. Experts...HA!
The ones that predict $2000oz are people that sell gold.
It wasn't to long ago that gold was less than $300oz
JAM