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Friday, June 18, 2010

Gold Prices breaks records -Are we heading for a double dip recession

London Gold Bullion Market Historical
Average Gold Prices (1968 - 2010)

Year AVG.
1968 38.69
1969 41.09
1970 35.94
1971 40.80
1972 58.16
1973 97.32
1974 159.26
1975 161.02
1976 124.84
1977 147.71
1978 193.22
1979 306.68
1980 612.56
1981 460.03
1982 375.67
1983 424.35
1984 360.48
1985 317.26
1986 367.66
1987 446.46
1988 436.94
1989 381.44
1990 383.51
1991 362.11
1992 343.82
1993 359.77
1994 384.00
1995 384.17
1996 387.77
1997 331.02
1998 294.24
1999 278.98
2000 279.11
2001 271.04
2002 309.73
2003 363.38
2004 409.72
2005 444.74
2006 603.46
2007 695.39
2008 871.96
2009 972.34
2010 1260 ( As on June 19 / 2010)

Investors Fear Winds of Debt Crisis and Future Inflation, Gold Sails to Record Highs

Saturday, June 19, 2010

A renewed interest in safe-haven assets lifted gold prices to new nominal highs Friday and market watchers said the near-term trajectory for the yellow metal is to $1,350 an ounce and higher by year’s end.

Gold prices built on the record high set Thursday, this time rising past $1,260. August gold futures at the Comex division of the New York Mercantile Exchange traded as high as $1,263.70 Friday, while spot gold touched $1,256.90. Other precious metals were not to be undone, and they rose in unison. At 12:45 p.m. EST August gold was up $12.20 to $1260.90.

The backdrop that has lifted gold this year – the European debt crisis, worries of future inflation, the desire to hold physical hard assets – continue to be winds behind gold’s sails. Technical chart formations add to the bullish undercurrent, allowing the yellow metal to glide higher.

“The credit issue in Europe – a lot of those countries are diversifying to hold metals,” said Daniel Pavilonis, senior market strategist at Lind-Waldock. “We’re seeing flight to quality from the euro.”

Concern over fiat currencies is one reason that investors have turned to gold and to a lesser extent other precious metals as part of a larger flight to quality to less risky assets. Although the U.S. dollar is also a fiat currency, it is benefitting at this time from safe-haven buying, and like gold is rising to multi-year highs against the euro. Although the U.S. has its own public debt problems, risk-averse buyers are seeing it as a “best of the worst” currencies.

Spencer Patton, founder of Steel Vine Investments, said technical charts are acting perfectly for bulls. “We’re making a series of higher highs and higher lows. We’ve had a break out day,” he said.

He said given that gold is making new highs it’s hard to point to specific price targets, but he said his next objective for gold is $1,350, based on measurements from gold’s break out.

The slow steady climb of gold is a positive sign for higher prices. It’s much better to see rallies of $10 or $15. Rallies of $40 or $50 show signs of a top,” he said. “Gold is really behaving well. We’ve worked out that overbought condition (from the last rally) and we’re seeing new buying come in.”

Pavilonis said some of the buying comes from a “snowball” effect where smaller investors are coat-tailing the action of larger investors.

Investors in exchange-traded funds continue to pile in, with Barclays Capital noting holdings in SPDR, the largest physically backed exchange-traded fund increased by 1.83 metric tons, to a fresh record high of 1,307.96 tons. The bank said the vigor of investor buying is overshadowing otherwise bearish fundamentals such as mine supply growing on balance, official sector sales rising and Indian imports slowing.

“In our view, barring profit taking and margin requirements in the near term, the external environment is set to remain favorable for investor interest to drive prices higher as the year unfolds,” the bank said in a research note.

While Thursday’s economic data in the form of U.S. jobless claims and housing data pressured the larger markets, Pavilonis said overall the economic data is mixed, noting the manufacturing data is showing some growth. The main concern, though, is that the jobs data is not picking up as it should if the U.S. economy was picking up steam, which is part of gold’s allure.

He said by the end of the year, gold prices could see $1,500 as a “conservative” estimate.

Among Thursday’s economic reports was the U.S. consumer price index, an inflation gauge. The main number fell again, which could be a sign of deflation. If deflation is truly happening, Patton said then that is negative for gold prices. “A double-dip recession where we turn from slow growth to negative is bearish for gold. It would make me change my investment thesis and I’d be a seller in that case,” he said.

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