Monday, April 20, 2009

Today in Gold: Monday, April 20

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:

"The close: Very ouch"
Author: David Berman

Main Points: After a strong six week rally, stocks took a beating today on Wall Street. It all began when Bank of America released their first quarter report. Although they reported $4.2 Billion in earnings, the stock dropped 24.3 percent during the session. Why? Investors focused on rising credit losses and the CEO's words, describing "extremely difficult challenges."

It was then a domino effect across Wall Street. Citigroup and Wells Fargo, both strong after optimistic reports, both fell more than 15 percent. The market in general had its worse day since the beginning of March.

Of course, bad news means good news for gold. The price of gold rose nearly $16 to finish at about $885 an ounce.

Analysis: It's been mentioned here before, but while confidence has been rising of late that confidence is awfully fragile. It didn't take much for investors to change their minds on the entire state of the market based on one report with mixed results. Suddenly, gold is again a safe haven investment.

Interesting how Bank of America can reverse the good fortunes following prior first quarter announcements. Each day is independent of the last. Anything can happen.

"Gold Prices 'could rise to $1,500 per oz'"
Author: Goldbug

Main Points: Charles Gibson of Edison Investment Research suggested that the price of gold could rise to $1,500 an ounce. He cited two main reasons for this:

1) The market is being squeezed by negative real interest rates that are skewing the 'leasing' machinery. Under similar conditions in the 70s, the price of gold reached $850 an ounce, or $1,560 in today's dollars.

2) Gold mining companies are no longer selling gold to bullion banks, creating a shortage.

"We are going to see, after a bit of a lull," Gibson said, "investment demand come back with a vengeance."

Analysis: $1,500 is awfully optimistic, but it's impossible to rule out any scenario in this environment. As we've covered in the past, it's difficult comparing the current environment to the 70s or 80s. These are largely uncharted waters. Lack of retail jewelry demand as well as record levels of gold recycling are limiting the demand. We'll see if those trends continue.

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