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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Chispas who wrote (95999)	9/30/2003 4:57:30 AM
From: Chispas	Read Replies (1) \| Respond to of 116767

More comments on Chinese gold investments.... ______________________________________________________ Gold Shines As Investors Eye Safe Haven From The Globe's Stormy Economic Seas BY JED GRAHAM INVESTOR'S BUSINESS DAILY When the world seems dangerous, many investors think about putting money in the safest of havens — gold. Before the war in Iraq, gold prices spiked 20% to $382 an ounce from December to February. By the time Baghdad fell, nearly all those gains had been wiped out. "Every war or major international problem prompts investors everywhere to hedge in gold," wrote Milton Ezrati, senior economic strategist at Lord, Abbett & Co. "Their demand for the metal tends to create a spike in its price that usually persists until investors regain their confidence in the predictability of the future." So why has gold rescaled that peak? The price of gold hit a seven-year high of $393 Thursday before pulling back. It closed Monday near $382. There are plenty of theories, but no single answer. Industry analysts point to increased demand and falling production. Some economists say the galloping price of gold is a result of the Federal Reserve's aggressive efforts to stimulate the economy. Still others blame America's ballooning current account deficit, which is putting pressure on the dollar. With none of these factors likely to change soon, there's little reason to expect gold to lose its luster. G-7 A Catalyst The latest rise in gold prices followed the Group of Seven financial leaders' endorsement of flexible exchange rates. The language, which the U.S. had urged, signaled Japan would curb its purchase of dollar-based assets and let the yen rise against the dollar. The statement also added to pressure on China to adjust its currency's fixed exchange rate with the dollar. Since then, the dollar has fallen to three-month lows against the euro and three-year lows against the yen. The price of gold, which tends to move inversely with the dollar, spiked nearly $6 in the first trading day after the G-7 meeting. "We already had a Fed that was biased toward inflation risk, and now we have the Treasury putting more logs on that fire," said David Gitlitz, chief economist at TrendMacrolytics. Whereas other commodities are heavily influenced by changes in supply and demand, the supply of gold changes slowly, making it the most sensitive inflation gauge in the view of many economists. "Gold has always been the quintessential inflation hedge," Ezrati wrote. When gold traded near $260 an ounce in recent years, some economists took it as a sign that the Federal Reserve was holding monetary policy too tight and strangling the economy. With gold now above $380, some say the Fed is in danger of printing too much money and sparking inflation. "I think the Fed has caused (the price of gold) to rise by making statements that they're going to continue to maintain this easy policy" until the economy is creating enough jobs, Gitlitz said. "Job creation has nothing to do with either inflation or deflation." The Fed's focus on fighting deflation amid accelerating economic growth and swelling federal deficits risks inflation, Ezrati wrote. "But the Fed still has time to adjust any excess, as it has successfully done in the past, once the economy's forward momentum is assured," he wrote. Bob Gay, head of global bond research at Commerzbank Securities, sees a different message in the rising price of gold. "Inflationary risk is nowhere to be had in the world economy," Gay said. Instead, he thinks investors are turning to gold as a haven, not from war and terror, but from the prospect of extremely volatile currency markets. That volatility is the result of global imbalances built up as a savings-short U.S. economy has been the world's main economic engine. As Americans keep spending, other nations have grown more reliant on exports to the U.S. to offset sluggish demand at home. As a result, the current account deficit has ballooned to the point that the U.S. needs $1.5 billion in foreign capital each day to fund domestic demand, including a gaping federal budget deficit. The possibility that nations such as Japan and China would slow their buys of U.S. assets and let their own currencies strengthen against the dollar highlighted the prospect of a dollar swoon. But economics aren't the only source of gold's strength. "We believe that going forward gold prices will be driven by a different set of parameters than just U.S. dollar weakness," wrote CIBC World Markets analysts Barry Cooper and Ayesha Hira. The supply of gold is expected to decrease in coming years because "exploration expenditures have not been keeping pace with depletion rates," they wrote. Meanwhile, Chinese demand is rising. The government bought 100 tons of gold in late 2002 to keep holdings steady as a share of foreign reserves. With China's foreign reserves up another 21% in the first half of 2003, CIBC sees more gold buys ahead.