This Month in Gold – May 2011

Gold Breaks $1,500 An Ounce
New York Times – The price of gold broke through the psychologically significant $1,500 an ounce barrier on Wednesday, April 20th for the first time. Global inflation and sovereign debt concerns, geopolitical unrest in the Middle East, and mounting Asian demand combined to drive the precious metal to a new high. Although a record figure in nominal terms, when adjusted for inflation, the price of gold remains below the January 1980 peak of $2,435. The adjusted figure suggests plenty of room for continued appreciation. Not to be left behind, mutual funds are increasingly growing their gold holdings. And the burgeoning popularity of gold-based exchange-traded funds (ETFs), accessible to all manner of amateur and professional investors, is likewise aiding the ascent.
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Silver, Platinum Continue to Outshine Gold
The Toronto Sun – The price of gold has climbed consistently over the past decade. But silver, displaying markedly greater volatility, has gone parabolic. Silver doubled in price over the past year, and the bull run continued in April. The historic silver-to-gold ratio of 16:1 – a calculus based on the two metals’ approximate proportion in the ground – suggests it should be twice the price that it is today. In addition to being viewed as an effective inflation hedge, silver enjoys myriad industrial applications that undergird demand as the global economic recovery gains steam. Platinum, with a similar mix of safe haven & industrial exposure, but a much higher cost-per-weight, appears to be along for the ride.
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World Governments Fleeing the Dollar Flood
Wall Street Journal – “It’s our currency, but your problem,” said President Nixon’s Treasury Secretary John Connally in 1971. Apparently, not much has changed in the past 40 years. In its efforts to keep the US economy afloat as Congress dawdles on the deficit, the Federal Reserve is pumping dollars into the global financial system at a record clip. The Fed’s cheap credit is forcing investors to plunge their newfound monopoly money into emerging markets in search of higher returns and sustainable growth, resulting in rampant inflation overseas that foreign governments fear will stoke asset bubbles. The developing world is responding with capital controls, and, in a first since the 1994 Mexico peso crisis, these measures have received the tepid endorsement of the International Monetary Fund. The world is balking at Washington’s economic stewardship, looking to end its dollar addiction, and searching for viable alternatives. Will our currency finally become our problem?
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Report: Gold to Crack $2,000/oz Barrier Within 3 Years
The Telegraph – Analysts at Standard Chartered in London, the emerging markets-centric bank, have predicted that the price of gold will surpass $2,100 an ounce within three years and possibly $5,000 by decade’s end. Their latest report points to surging demand for bullion, linked to rising living standards in China and India, and a supply lag among gold miners as the primary drivers of the protracted bull run. To this, the analysts add that rock-bottom interest rates in the US over the short-to-medium run, a condition that will likely send the Dollar Index to new lows, should further buoy the yellow metal. Standard Chartered expects a peak in demand between 2014 and 2020.
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