Tuesday, June 2, 2009

Today in Gold: Tuesday, June 2

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 Runs Back Toward $1,000 an Ounce"
Author: Carolyn Cui
Website: WSJ.com

Main Points: After finishing essentially flat on Monday, gold regained its upward momentum and rose $3.20 to finish Tuesday at $983.20 an ounce.

Part of the equation for the rise of gold has been the weakening dollar. As the US dollar weakens, gold strengthens -- historically speaking. Since mid-April, the dollar has dropped 9% while gold has risen 13%.

"I think we are getting into the final part of this particular rally," said Philip Klapwijk of GFMS Ltd., which forecasts gold's average price at $970. He says that the higher price will result in lower jewelry demand and higher scrap gold sales, "which is not a good combination for gold."

Analysis: Combined with the expected 403 ton sale of gold by the IMF, the scrap and jewelry market balance are all reasons why we shouldn't expect the price of gold to rise much higher. The jewelery industry is already struggling due to the high gold price; a higher price will only damage it further. As the price rises, selling scrap gold will become bigger and bigger business, thus putting more gold into the system. Supply is strengthened, demand is weakened.

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