To: TobagoJack who wrote (28484 ) 2/6/2003 8:47:21 AM From: elmatador Respond to of 74559 Gold "the metal may have further to gain" Published: Feb 5 2003 13:50 | Last Updated: Feb 5 2003 13:50 When the pre-pubescent euro becomes, by default, a greater store of wealth than the dollar, it is easy to see why investors are dragging gold out of retirement. Barged aside in the go-go era of dollar supremacy, gold has revelled in the end of the equity bull market. Since early 2001, it has climbed 40 per cent, from $275 per ounce to $385. As gold miners curb hedging, hedge funds have moved in, driving long positions on Comex to record levels. The speculation sets off alarm bells, especially when demand for jewellery is weak and governments, fighting higher budget deficits, must be itching to raid the vaults. It is those same deficits that may be one of gold's sources of strength, however. History suggests gold does best when countries have to reflate their way back to growth. Conventional wisdom suggests the main risk to gold is a swift war against Iraq. Such a rose-tinted outcome, however, would not necessarily stem the dollar's decline, which is due more to the US current account deficit. A declining dollar is well correlated with a rising gold price because it makes gold more affordable to non-US consumers. In euros, gold's rehabilitation has been less spectacular; it is up 13 per cent in two years. Given the currency's unattractiveness, the metal may have further to gain. Supply factors should help. Last year was the first in two decades in which gold production fell. The question is whether producers can dig it up fast enough to enjoy the higher prices - and ultimately undermine them.