Tuesday, March 3, 2009

Today in Gold: Tuesday, March 3

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 Fever Strikes During Hard Times"
Author: The Economist
Website: www.TheChronicleHerald.ca

Main Points: As Adrian Ash at BullionVault puts it, "Gold is something you buy if you have something to lose." Indeed. During difficult times, people keep their faith in gold. Despite a seven day downward trend, gold has still plenty of upside. "Gold bugs talk excitedly about it reaching $2,300, which would match the January 1980 peak in real terms." Why the optimism during the tumble? It comes down to supply and demand – there is a limited supply of gold and plenty of buyers. "If gold is burnished by grim news, it seems likely to become still more alluring."

Analysis: Such commentary reiterates that gold is a long-term investment that is not defined by short spikes. The recent drop in the price of gold may simply attract more attention to it in the coming weeks. Only time will tell.

"Wanted: Someone who thinks the gold price is going to fall"
Author: Paul Farrow
Website: www.Telegraph.co.uk

Main Points: Though prices have dropped of late, Farrow points out that there are reports of gold coin shortages around the world during difficult economic times, creating a surge in demand. The typical trend is for gold prices to rise early and then fall back, though these are not typical times. There have been signs of de-hedging, which Farrow says suggests the price of gold has room to grow. When writing this article, Farrow interviewed several analysts, looking for an expert who isn't bullish on gold. They couldn't find one.

Analysis: A couple of keys here: 1) Supply and demand, and 2) expert analysis. Gold tends to go up during tough economic times because it is a "safe haven," but you don't think about the fact that it also creates a shortage of the precious metal. Despite a daily drop in price during the past week, market experts continue to have a long-term outlook. Overall, there does seem to be some hint of "uncharted territory" here, and experts are torn between predicting based on history and re-writing the book.

"Gold Falls Most in Seven Weeks as Equities Climb; Silver Drops"
Author: Pham-Duy Nguyen
Website: www.Bloomberg.com

Main Points: After topping out over $1,000 an ounce on February 20, the price of gold is down for the seventh straight session. "Gold futures for April delivery fell $31.10, or 3.3 percent, to $908.90 an ounce at 11:15 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest drop since Jan. 12. Earlier, the metal touched $905.70, the lowest for a most-active contract since Feb. 10."

Analysis: The question, of course, is whether this is a trend or an opportunity. If it's a trend, it's certainly a good time to sell (send your jewelry to Cash4Gold). There does not appear to be a short-term consensus, at least, on the immediate direction of gold.

"The Daily Resource: 03/03/2009"
Website: www.IBTimes.com

Main Points: IBTimes looks at the recent selling of gold as a way for investors to manage margins. While gold has had a recent slide, a sell – unless a very short sell – will result in a profit. Given the way the market is currently behaving, there aren't many opportunities for profits right now.

But that recent slide will likely attract new investors, given that gold is still up more than 6% this year and not all that far from all-time highs. Meanwhile, the S&P 500 has fallen more than 21% and is at a 12-year low. The advantage for gold is still quite clear.

Tom Hartmann, a commodity analyst at Altavest Worldwide Trading Inc. in California, envisions more investors flocking to gold. "If one is scared about their cash sitting in the bank or short-term stock volatility, then perhaps gold would be a place to tuck away some money."

Analysis: It's easy to have a knee-jerk reaction to the recent gold slide, but the broader picture still paints it as a stable investment – particularly when compared to the rest of the market. It would not be at all surprising to see markets open next week with a new upward trend for gold, reflecting investors taking advantage of a quick dip.

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