Gold Climbs to Record on Demand for Inflation-Hedge; Silver Price Tops $40

[Purveyor]

By Pham-Duy Nguyen

April 8 (Bloomberg) -- Gold rose, setting a record for the fourth time this week, as a weakening dollar boosted demand for the precious metal as an alternative asset and an inflation hedge. Silver climbed above $40 an ounce to a 31-year high.

Gold rose to $1,476.20 an ounce in New York, the highest ever, after the dollar slid to the lowest level since December 2009 against a basket of six major currencies. Crude oil touched a 30-month high, and the European Central Bank yesterday raised borrowing costs from a record low to fight accelerating prices.

“The Federal Reserve isn’t anywhere near an inflation fight as the ECB,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “Gold’s move is about the weakness in the dollar. Inflation is the buzzword, and it’s the impetus behind the trade.”

Gold futures for June delivery rose $13.60, or 0.9 percent, to $1,472.90 at 11:44 a.m. on the Comex in New York. Gold for immediate delivery in London climbed as much as 1.2 percent to a record $1,474.90.

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http://noir.bloomberg.com/apps/news?pid=20602013&sid=aEkKTE4VsMLU

[Davis_X_Machina]

1. "Inflation is the buzzword"

"Blessed are those who do not see, yet still believe."

[JackintheGreen]

2. OMG, I just dug up 2 1987 liberty dollars!

Now I can put gas in my car. Twice!

[Art_from_Ark]

9. Liberty dollars?

You mean American Silver Eagles, minted by Uncle Sam?

[grasswire]

3. damn. I sold grandma's gold jewelry LAST year.

bah

[Taitertots]

4. The herd investors charge full speed ahead into their next self created bubble

Will we need another collapse to show that gold is 2001's tech stocks and 2007's housing market.

[Art_from_Ark]

11. Gold is 2001's tech stocks??? 2007's housing marking???

Seriously, do you actually believe that?

Tech stocks were being issued for every type of company imaginable, in seemingly limitless quantities, and prices were based purely on speculation. If you had tech stocks, you had absolutely nothing that was tangible or had any intrinsic value-- you were just betting on black/red, even/odd, even specific numbers with the riskiest stocks. With housing, it was the law of supply and demand-- developers were buying up land and converting it to Ticky-Tack Estates based on the premise that "if you build it, they will come". And people were being encouraged to take out loans for ticky-tack houses far in excess of what they could afford.

Gold, on the other hand, has been a monetary medium for as long as civilizations have existed. Unlike stocks or houses, it is something that cannot be artificially produced. Unlike stocks, it is something that is quite tangible. Savvy investors have a good idea of how much gold there is in the world, how much is being produced, and who is buying it. Unlike 1990s US tech stocks or US houses, gold is a world market. Unlike houses, gold investments are not bound to a specific geographical area.

You should really read about the history of money and gold, and who is buying this gold, before making such uninformed statements.

[Taitertots]

12. What you are saying does nothing to counter the obvious gold bubble

Your entire post is irrelevant to the topic. Gold is highly over priced, run up by a series of factors. Nothing you have said counters this or supports the higher prices.

[Art_from_Ark]

13. You know nothing about the gold market

Really, you don't seem to know a damn thing about it. Just saying "It's overpriced" doesn't make it so. Comparing it to housing and tech stock bubbles is ridiculous as well. It's a completely different ball game.

[Taitertots]

14. And you still do nothing to support the high gold prices

Or provide anything to show that gold is different from housing or tech stocks.

"Just saying "It's overpriced" doesn't make it so"
The price of gold is high. I don't think anyone is doubting that. Do you have anything to justify these rapid price increases?

[Art_from_Ark]

16. You don't understand the difference between intangible stocks

offered in practically unlimited amounts for pie-in-the-sky companies, versus worldwide interest in a relatively scarce, chemically stable metal that has been considered a monetary medium for millennia??? Really???

Reasons for the price increase:
Gold has always had value, since civilizations began. Paper currencies come and go, are debased on a whim by their issuing authority, and usually end up losing most if not all of their value. For example, ALL paper currencies in the world today have only a fraction of the buying power that they did 40 years ago (assuming they were even in existence 40 years ago), and some that were in existence 40 years ago have even become so worthless that they have been demonetized-- that is, they have absolutely NO value as money anymore. People the world over have suffered from seeing their paper becoming worthless-- they want monetary instruments that their government can't debase.

Gold is a WORLD market. Unlike iffy US tech stocks, which can lose their value in an instant and which must be sold through brokerages, unlike US houses that are tied to a tiny geographical area and are often difficult to sell in months, let alone days.

Gold is fungible and liquid-- one ounce of .999 gold in the US is the same as 1 ounce of .999 gold in Japan is the same as 1 ounce of .999 gold in Germany, and can be easily sold to a dealer. The same cannot be said for dubious tech stocks, and certainly cannot be said for houses, which have so many variables involved that it is impossible to make an objective evaluation of their value.

There are many countries in the world today that have a lot of spare cash, and are looking to save it for a rainy day. They want to have something that is not affected by events in any one single country. Gold is a logical selection for a diverse investment basket because it has been a monetary medium for millennia, it represents a lot of wealth even in small amounts, it is easily sold on the world market.

[Taitertots]

17. Again, nothing you are saying is supporting the high gold prices

Not a single one of those factors has changed to justify the rapid price increases. Everything you are saying is meaningless to the topic at hand. None of those explain why gold is highly priced right now. They are merely statements about gold, not statements explaining the rapidly growing bubble.

You are arguing against the possibility of something that has already happened in the 1980's. What change has been made that will stop the exact same thing from happening again?

[upi402]

25. Do you have confidence in the dollar's value?

For me, I figured the fiat gig was up when BushCo hid the M3. It was like a 'last straw' for me; while mountains of cash went missing, the debt became rocket-fueled, and banksters' gambling debts were covered by housewives, mechanics, and school kids.

All in all, commodities - especially one commonly relative to all humans - will be valuable against what will become of the USD.

(my amateur .02 anyway)

[Taitertots]

26. Is there any reason that you think that illiquid and long term assets should be in the money supply?

M3 doesn't provide useful data.

Why don't you have confidence in the dollar? Inflation is low, money creation as a percent of the money supply is low, and there is little reason to believe those will change.

[orangeapple]

28. trillion+ deficits

The Fed printing money to buy T-bills, and there is little reason to believe those will change.

I have absolute faith that Bernanke will do what he said he'd do, and that's print money to drive down the purchasing power of the dollar. He's been completely honest on that score.

"Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services." - Ben Bernanke, 2002

The ascent of the gold price in dollars won't break until the printing stops, and that will take a serious increase in interest rates (see: Volcker Fed)

[orangeapple]

27. yeah, the trillions of dollars added to the Fed's balance sheet

and the trillions of dollars in deficits the U.S. government has been running for starters...

"In gold and silver terms the Dow Jones over the last ten years has already lost over more than 80% of its value, and yesterday, my friend Frank Holmes was on CNBC, and I don't know remember if it was you or somebody else, but the two interviews were kind of ridiculing him, telling him that gold was a bubble and so forth. I just came now from a conference. There were over 200 people here in Singapore. I asked the audiences, fund managers, you would imagine that they are intelligent. I asked them who of you has personally more than 5% of their assets in gold. Not one person lifted their hand. Not one. If it were a bubble, a lot of people would have gold. The whole world would be trading gold 24 hours a day, but I don't think it's really a bubble. I think maybe gold is cheaper today than it was in 1999 when it was at $252." - Marc Faber, comments on CNBC, April 8, 2011

[Dr. Righteous]

5. The article title is really misleading

It's not the price of gold that's going up. Gold has remained relatively stable in price over thousands of years. It's the value of the dollar that's going down.

[roamer65]

6. Absolutely right.

One ounce of gold still buys roundabout 10 barrels of oil as it has in the past.

[vert1276]

7. comparing a paper currency in a fiat system to gold is your first mistake

why people look at gold as anything more then a shiny medal still amazes me....I really dont understand its intrinsic value that it holds over people. People gold is not wealth and doesn't represent wealth. Gold has no utility(other then the ability to be used to fill a tooth or use in some electronics). Who care what the price of gold is? And it doesn't always represent inflation when gold goes up, it can just mean an increase in demand for gold. And secondly gold is not at an all time high or even close to it. IF adjusted for inflation gold was $2400 oz in 1982! So like I said gold has no utility, you cant eat gold or drink it, you cant tell it to go plow your field or water your crops or build you a house. Its value is intrinsic only.

[Dr. Righteous]

8. Think for a minute about the properties of gold when used as a currency.

There is a finite amount of it, so it cannot be created out of thin air as Federal Reserve Notes are. There is just enough of it to serve as a convenient currency- not too much of it in existence and not too little. It's INTRINSIC value will always be worth the amount it costs to mine it (including labor), whereas Federal Reserve Notes are worth no more than the paper and ink they're printed on. It can be melted down and converted for other use. Because of this it can also be weighed so you can be sure that you have exactly as much gold as what is stamped on the coin (versus the Federal Reserve Note which continuously loses purchasing power at the will of bankers). It gets used for jewelry.

These properties are just what makes gold the best known substance to be used for currency. It's not just because it's gold. If something with better properties to be used as money came along, the market would naturally replace it. So far, after thousands of years, humans have not discovered that substance. As long as it retains these superior properties for currency over any other subtance known to man, it will represent wealth.

The price of gold is extremely important because there is a relatively constant amount of it in existence. It's price accurately measures the value of the dollar in the long term. You're correct that spontaneous spikes may reflect a sharp increase in demand for gold, but in the long run this is not the case becuase it would eventually average out as demand would drop. The main reason the demand for gold goes up is because the value of the dollar goes down.

[roamer65]

24. I trust a currency used by mankind for 5000 years vs a fiat dollar.

Run the numbers and giold and silver buy you nearly the same as they did many, many years ago. Fiat currencies the number required for purchases just seems to keep going up...lol.

[Art_from_Ark]

10. That post is so full of fallacies

Gold is a metal, not a medal.

Gold's properties make it suitable for a vast amount of potential uses. Ever hear of gold leaf? Gold is the most malleable metal known. It is also one of the most stable and is nearly impervious to corrosion. Because of its malleability, it can be used to provide corrosion-resistant coatings for other, less stable metals. Gold has represented wealth since civilizations began and still represents wealth the world over. You can say lalala it doesn't, but that doesn't change the fact that it does.

So what if you can't eat it, drink it, or farm it. It is a monetary medium, which by definition is not something that is eaten, drunk, or used for plowing. Sure you can't tell gold to build a house, but jeez, you can't tell a dollar bill to build a house, either! Or plow the damn fields! Hell, you can't even eat or drink a dollar bill.

[AnneD]

22. Dear Art.....

Don't put your hand in the crazy. It will end badly.

Remember, you can't teach a pig to whistle-it annoys the pig and frustrates you. ;)

[Art_from_Ark]

31. Words of wisdom, to be sure

However, the "teacher" in me just can't resist the urge to try to teach a pig to whistle, even if the pig just keeps saying "oink".

[liberalla]

15. Yeehah! and still it surges

[golfguru]

18. Adjusted for inflation, gold & silver were highest in 1978-79

[golfguru]

19. Silver ran up to $40 per oz in 1979

so in inflation adjusted price, it would have to be selling at $80-100 per oz
to break even with the previous high.

[liberalla]

20. Consumer Price Index

I like to use the CPI calculator at the Federal Reserve Bank of Minneapolis website.

According to them, $40 worth of silver in 1979 translates to $121.64 in today's dollars.

Similarly, the Gold price of $850 in 1980 translates to $2277.29 in today's $$$.

So, you're exactly right about adjusting for inflation... and that's why I believe the metal prices can go much higher. It's fun watching.

[Dr. Righteous]

21. The CPI is not the most accurate method to judge prices.

It ignores prices which are "volatile" like food and energy. But it is the prices of these things which affect Americans the most.

[roamer65]

23. The real rate of inflation is between 10-15% right now.

That is using the 1980 measurement style where hamburger is not substituted for steak.

http://www.shadowstats.com

[Odin2005]

29. This bubble is gonna come crashing down very soon.

[OllieLotte]

30. Yep...probably right after we balance the budget. n/t

[Art_from_Ark]

32. Which will be "soon"

if one is thinking in terms of "geological time" :)