Wednesday, March 18, 2009

Today in Gold: Wednesday, March 18

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:

"Citigroup Increases Gold Price Forecast on Investment Demand"
Author: Glenys Sim

Main Points: Expecting that the government stimulus will result in inflation (favorable for gold), Citigroup increased their projected average price of gold for 2009 to $856 an ounce, up from their original $825 projection. They also increased their 2010 projected average to $925, up from $900.

Analysis: This is rather safe and conservative compared to many more favorable projections. Given gold is already hovering above $900 and projections have been for further declining economic conditions, the numbers would seem a bit low. It would seem they are suggesting that at some time between now and deflation gold will take a dive.

"Is Gold Really the Safest Investment?"
Author: Ari J. Officer

Main Points: Time covers some of the common themes we've seen about why when gold has value, but they also take a different approach by questioning if the fact gold has value is even rational.

"At such high prices, gold ceases to have much practical use. There is no theoretical rationale why anyone should even want to invest in it. Gold has value only because we believe it is valuable. It is a collective hallucination."

Interestingly, the article then goes on to explain why gold has tread water of late and hasn't gone up further than it has. It is holding value, and because of that investors are selling it to cover other losses.

Analysis: Interesting point about the idea that gold has value is a hallucination. And true. But the perception that gold has value isn't going away. If it did, currency would collapse completely.

"Gold prices tumble as stocks extend rally"
Author: Associated Press

Main Points: Gold took a big hit today, falling $27.70 to $889.90 an ounce. This is the lowest gold prices have been since the end of January, although there are reports that prices were rising in after hours trading.

News that the Federal Reserve plans to buy long-term Treasurys helped continue the rally on stocks. Demand for gold has suffered as a result of growing optimism with the economy, encouraging investors to take more risks and move money out of safe havens like gold.

Analysis: The last time gold dropped below $900, it was a brief stay. It's interesting how the $900 and $1,000 barriers act as both an attractive and repellent force. Once gold starts rising, it's drawn to $1,000 -- but quickly falls once it breaks the number. Same for when it drops below $900. We'll see if that trend continues, but early reports make it seem as though gold will rally on Thursday.

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