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$2,000 Gold is Coming

5 December 2009 - Markets - Neil Kokemuller

The price of an ounce of gold continues to remain above $1,200 after reaching a new all-time high at $1,218.25 to start the final month of 2009. In early Friday (December 4) morning trade, the spot rate for gold was $1,205.40.

There has been little pull back gold as it continues a relentless push higher. After busting through its previous high near $1,020 in early October, gold has gained just shy of $200 per ounce in two months, a remarkable feat by any measure.

Gold has essentially been on a consistent upward trend since the start of the millennium, posting around a 17 percent annual rate of return. The trend has progressively become more and more intense over the decade in light of the recession, growing interest in safe money investments from speculators, and the weakening dollar.

As momentum builds for gold, analysts are coming out of the woodwork for calls of $2,000 gold, or even higher. One top analyst suggested gold could top out as high as $2,600 in the medium term.

Given a one year climb of nearly $500 per ounce, much of which has developed in the last few months, calls for $2,000 certainly do not seem as out of the realm of possibility as they might have previously.

Perhaps the biggest potential obstacle for gold continuing to soar is history. The dollar has been running very weak against other investments and currencies as the US economy has sunk. The Friday jobs report showed only 11,000 jobs lost in November.

With other sectors of the US economy already showing improvements, a return to the status quo and renewed interest in the dollar could create a sudden and sharp reversal in investments that have preyed on the weak dollar in the last two to three years.

Prior to gold’s run up in the last year or two, the old adage with gold was that once it reached a high point, you could expect a reversal. The question now becomes whether speculators still believe that enough to quickly get out when the US economy improves and interest in the dollar returns.

Perhaps gold has become so ingrained as a safe money investment that more cautious investors will continue to push it higher even in light of a better economic picture.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

 


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