BOFA makes Bold Statement on Gold Future

Photo: Price of Gold rose over $900 dollars since 2007

BOFA(Bank of America) is making headlines all over the gold news community with its recent bold statement on the future pricing of gold. In a recent statement Bank of America predicted that the price of gold would rise up to $2000 dollars per ounce, but would maintain its position in the area from $1500-$2000 per ounce. With BOFA’s prediction, the price of gold would sustain at this maximum level of $2000 for the next five years.

Reuters, one of the most respected publishers of breaking news in the Business and Financial markets both US and International, reports the following statement from BOFA:

"We look at supply and demand balances required to clear the gold market under three average price scenarios (i.e. $1,000/oz, $1,500/oz and $2,000/oz over the coming five years)."

Whether or not the price of gold will stay under $2000 an ounce during a five year time limit is surely up to debate, however gold owners and investors can be fairly confident that the price of gold will at the very least reach the $2000 dollar floor by 2015. From 2010 to 2011 gold saw a jump of $300 dollars that put gold into the record breaking price of $1500+ an ounce. Over the past 5 years, goldprice.org reports that gold has already jumped $962 an ounce. If history is to repeat itself, the price of gold may surprise BOFA, gold investors, and private gold owners, rising to new record breaking levels.

Sources and Photos: http://www.reuters.com/article/2011/06/21/gold-research-bofamerill-idUSL3E7HL1DO20110621 http://www.goldprice.org/

Gold gains on inflation concerns

Following historical trends, gold rose on speculation that the slowing economy in the US and their higher inflation will create a rise in demand for gold as an asset of value. Silver, on the other hand fell. Gold reached an all-time high of $US1,033.90 an ounce on March 17.

"Gold is acting as an alternative investment, big time,'' said Ron Goodis, a futures-trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. "People are liquidating across all asset classes, and they're looking for a place where it's safe. We could see a situation where a lot of commodities go down, but gold takes off. Gold is a fear trade.''

Gold futures for August delivery rose $US8, or 0.8%, to $US970.70 an ounce on the Comex division of the New York Mercantile Exchange. The metal has climbed in six of the past seven sessions .

Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by gold, jumped 7.2% last week to an all-time high of 705.9 metric tons on July 11, topping the previous record of 663.8 tons on March 17. The fund dropped to 701.9 tons on July 14 and has remained unchanged this week. Gold peaked in March when the Federal Reserve helped broker a deal for JPMorgan Chase & Co. to buy Bear Stearns Cos .

"Gold rose on the fear in the financial system,'' said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. "The fear may have eased, but it hasn't evaporated. Fear will come back sooner rather than later. There's a tremendous bid on gold on these breaks.' '

Gold may rise to $US1,500 in the next six months as investors wait out the turmoil in financial markets .

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AMEX Gold BUGS Index

There are two major gold indices that dominate the gold market. These are the Philadelphia Stock Exchange's XAU and the AMEX's Gold BUGS Index.

The major difference between the two is that the BUGS index is comprised exclusively of mining stocks that will not hedge their gold positions more than a year-and-a-half into the future. This practice of unhedging their gold futures makes the BUGS Index much more profitable than the XAU as long as gold prices are rising. When gold prices are dropping however, losses are compounded. BUGS is an acronym for B asket of Unhedged Gold Stocks. The index was introduced on March 15, 1996 with a starting value of 200 .

The most positive characteristic of the BUGS index is that when gold prices are on the rise, the Gold BUGS Index is an excellent way for investors to capitalize on that increase. The index has a high correlation to the current market price of gold. The drawback of the BUGS comes when the price of gold declines. The unhedged Gold BUGS Index falls much faster than its hedged cousin, the XAU. Another issue is that the gold BUGS has an unusual index weighting system can be difficult to understand .

The composition of AMEX Gold BUGS Index is made up of 15 of the nation's largest “unhedged” gold mining stocks . It is a “modified equal-dollar weighted” index. The result is that most of the index's component stocks are equally weighted. Despite the equality the largest stocks still carry a greater weight than the smallest .

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Gold futures decline

Gold for June delivery fell $7.60 to $924.20 an ounce on the New York Mercantile Exchange. Despite breaking above the short-term down trend line, the precious metal continues to meet chart resistance, suggesting gold may look to spend some more time consolidating above $900 an ounce. However, gold’s mid to longer-term outlook remains bullish.
On Thursday, gold futures dropped $5.70 to end at $931.80 an ounce. “I’d expect gold to be trading much higher as now not only do we have price inflation here in the U.S., but we are now importing it at a rapid rate from China and other trade partners,” said Zachary Oxman, senior trader at Wisdom Financial.“It seems as if traders are hesitant to take long side positions today,” Oxman said. “With the dollar and stock market weak, I’d have expected to see a bigger buy into gold.”
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