Gold gets another lift on global economic worries

For months, the gold market has been in a tug of war between two camps: Hedge funds and other institutional investors and speculators have been bailing out of gold futures contracts to raise cash, while individual investors have been hungry buyers of gold coins and bars.

The sellers had prevailed for most of the last six weeks, driving the metal down to near $700 an ounce by Nov. 13, from $900 in late September.

Now it looks like the buyers finally are gaining the upper hand. Gold futures rose $43.10 to $791.70 an ounce in New York today, the highest price since Oct. 16.

The World Gold Council reported this week that net retail investment demand for gold (such as for coins and bars) jumped 121% in the third quarter ended Sept. 30 from a year earlier, to 232 tons.

With concerns about the global economy worsening, "What you’re seeing is people moving into gold as part of the 'flight to quality,' " said Stephen Platt, a commodities analyst at Archer Financial Services in Chicago.

"We’re selling everything we can pull in," said Ken Edwards, a partner at gold dealer California Numismatics in Inglewood. Despite the battering in the gold futures market in recent months, demand for physical gold, such as coins, "has been completely one way," he said. If anything, lower prices have fueled more demand, he said.

Many buyers, Edwards said, are figuring that global governments’ unprecedented efforts to pump money into the financial system will inevitably lead to higher inflation down the road -- even if the immediate concern of central bankers is deflationary pressures as consumer spending slumps.

"What I hear from [investors] is that they think deflation is a short-term issue," Edwards said.

Gold futures hit a record high of $1,004 an ounce in March, then began to tumble as the dollar rallied. This time around, gold is gaining even though the dollar remains strong.

Photo: Gold bullion at a smelting facility in India (Manjunath Kiran / EPA)

Comments

[Tao Jones]

A couple of things: 1) You state that gold "...hit a record high of $1004 an ounce in March..." It actually reached $1030+ on March 17th, on an intraday basis. 2) Gold isn't under pressure on the Comex just because hedge funds are desperately selling anything and everything to get their hands on enough cash to satisfy redemptions. The selling pressure is at least equally coming from the concerted efforts of the bullion banks, and other "interested parties" in New York, carrying water for the US Treasury and the Fed in an attempt to supress the price of gold.

Their intention in doing so is to prevent a "flight to quality" by those who understand that the US$ is, most assuredly, NOT a safe haven currency. There is no such thing in the universe of fiat currencies. While the US$ may, for the moment, trade at a premium to most other paper currencies, that means nothing when paper currencies are compared to something of innate value, such as gold.

Those who understand the game being played at the Comex will take advantage of the golden opportunity (no pun intended) that presently exists. That is, they will take delivery of physical gold at the Comex, and either keep it, or sell it into the huge demand for physical that exists everywhere BUT the Comex.

Such an arbitrage opportunity is too lucrative to remain unexploited.

TaoJones

[tom]

Is the United States broke?
Some one please explain why or why not.

thanks

t

[martscan]

TaoJones: Where is the arbitrage play in gold? Dec futures at 812, NY spot at 805 bid 806 ask, London fix at 817 am 812 pm.

Transaction costs, interest, insurance, storage = a net loss.

Why is it not a flight to quality..or a safe haven? Who doesn't want US dollars? Short term Treasuries are going negative...where is money going to go?