Friday, February 27, 2009

Today in Gold: Friday, February 27

Outlook Remains Strong

Each weekday, Cash4Gold will troll through the web’s gold banter and post some of the bigger or more interesting stories. Following is a run-down of today’s features:

"Gold, dollar break with past as safety buying spurs both higher"
Author: Moming Zhou

Main Points: Moming Zhou analyzes the trend of gold pricing, noting that the dollar and gold, at least lately, have been trending in opposite directions. As the dollar becomes less valuable, an ounce of gold will hypothetically be worth more dollars. However, the dollar’s recent upward trend coincided with gold topping out at about $1,000 per ounce. In conclusion, Zhou says that the price of gold is independent of other assets, and "moves to its own beat." Over the long term, gold "hasn’t had a strong relation with stocks, crude oil, Treasury securities or inflation rates."

Analysis: While safe, the value of gold on a day to day basis is somewhat unpredictable compared to other assets. While some have predicted that gold will continue to rise, such a prediction isn’t based on the behavior of other market securities. Given its somewhat erratic market behavior, selling gold now while it is approaching historic highs should be considered.

"Gold prices lose more ground, but pull off lows"
Author: The Associated Press
Website: International Herald Tribune

Main Points: After reaching an 11-month high of $1,000 per ounce on Friday, gold had a somewhat expected pullback, falling 5.3%. Experts do expect gold to rebound, considering the precious metal is a "safe haven" while the rest of the economy suffers. The pullback was simply necessary after such a significant surge (13%) during the past two months.

Analysis: While the value of gold can’t be tracked with the value of other assets and securities accurately, it does benefit from difficult economic times. Investors simply lose trust in otherwise safe investments like real estate and favor the strong, though somewhat unpredictable, performance of gold.

"Gold falls for fifth session as stocks pare losses"
Author: Moming Zhou

Main Points: The gross domestic product fell at a 6.2% seasonally adjusted annualized rate to finish the final quarter of 2008. Experts were estimating a 3.8% drop, and economists surveyed by MarketWatch had envisioned a 5.5% decline. The biggest decline since 1982 could increase the appeal of gold.

Analysis: Once again, gold as seen as a safe haven during difficult times. While the market in general thrives, investors flock to gold.

"When Gold Trades at 25 Times Oil"
Author: Chuck Marvin

Main Points: Marvin covers an interesting economic “myth” that claims a shift in gold and oil prices will occur once the price of gold hits 25 times that of oil. If history is any indication, there may be more to this myth than meets the eye. On February 23, gold was selling at more than 26 times the price of oil. By Thursday, prices readjusted and the discrepancy dropped to 21 times (the shift). In fact, the price of gold to oil ratio has exceeded 25:1 only seven times since 1970. Immediately following those seven occurrences, there was a quick correction. Marvin also reinforces that the recent bad economic news likely helped the price of gold while hurting oil.

Analysis: Certainly interesting. We’ve been told that the performance of other assets is typically a poor indicator of the performance of gold, but there is certainly history behind this myth (or theory). Of course, having a good gauge on the price of gold means that you are accurately tracking oil to begin with.

"Nothing Shines Like Gold"
Author: Donald Luskin

Main Points: Luskin has been touting gold during tough economic times for a while now. He does not believe the recent drop following the price of gold breaking the $1,000 per ounce barrier is a trend. In fact, he predicts a new all-time high within the next seven months.

Analysis: More support for the theory that gold’s most recent fall is only a temporary correction after such a rapid ascent.

"Gold's Luster Outshines Rising Prices"
Author: Yahoo! News
Website: Yahoo! News

Main Points: David Galland, managing director of Casey Research, says that "you'll probably see $1,500 this year" for the price of gold. "You can only mine so much gold in a given year. Dollars can be created in the blink of the eye and with the signing of the pen."

Analysis: A little supply and demand to support Galland’s prediction.

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