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$1,000 or not, gold has been no slouch the last nine years

September 8, 2009 |  4:45 am

Gold is trying to get the world's attention again. Its devotees say it shouldn't have to work this hard.

The metal’s third attempt in 17 months to rise above the $1,000 mark -- and stay there -- failed last week. But another run seems likely this week.

Near-term gold futures in New York jumped more than $40 an ounce last Wednesday and Thursday, to  $995.80, before stalling out on Friday. The contract closed Friday at $994.90, down 90 cents for the day.

Is $1,000 a big deal for gold? It could be, if the metal could top that price and hold above it. At that point, investors who’ve been unsure about adding gold to their portfolios might decide it’s high time to get on board. Large, round numbers can do that to people -- and gold’s permabulls naturally would love to be able to talk about $1,000 in the past tense.

Goldchart Crossing that mark for good also would give gold's fans a chance to remind the gold-free what they've been missing: The metal is on track for its ninth straight annual gain, a feat that few other investments have achieved in this decade.

Gold's winning streak lifted it from $279 at the end of 2001 to just over $1,000 in March 2008, before buyers began to balk. The metal rebounded from last fall's global asset crash to revisit $1,000 in February, only to quickly run out of steam again.

As the price began to lift off last week -- after treading water in recent months -- traders were hard-pressed to explain the sudden move, as I noted in this post on Thursday.

Much of gold’s strength since 2001 has derived from the dollar’s ongoing loss of value. The DXY index, which measures the greenback against six other major world currencies, reached a high of 120.90 in mid-2001. It closed Friday at 78.14, down 35% from the 2001 high.

Gold in this decade has resumed its role as the natural alternative to the dollar, and to all paper currencies, as a store of wealth -- a way to protect purchasing power.

But in recent months the dollar, like gold, had mostly just been running in place. The DXY index last week slipped just 0.3%, and was no lower than it had been a month earlier.

One theory making the rounds last week was that gold’s sudden strength was foreshadowing another steep drop in the dollar this fall. The greenback would be vulnerable if investors were to lose faith in a U.S. economic recovery.

President Obama’s declining poll numbers also could undermine the buck, if foreign investors were to equate his loss of public support with economic weakness.

The other popular explanation for gold’s fresh appeal is that some investors increasingly are wary of all paper currencies, fearing that the response of central banks worldwide to last year’s financial crash -- a massive injection of money into the banking system -- will set the scene for an inflation surge.

Even if inflation never flares, the simple argument for gold in a portfolio is that it should continue to play the same useful role of the last nine years: If you think the dollar has nowhere to go but down as the U.S. tries to borrow its way out of this recession, gold should stay on the opposite side of that seesaw.

And as a bonus, if the hard-core gold bugs finally are right about doomsday being just around the corner, you'll have your gold to trade for that one last can of spinach or tuna, or for that one last shotgun round.

-- Tom Petruno

 

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