-->Glittering new gold standard?
The price of gold flirted with a 27-year high of more than $825 an ounce Tuesday, and analysts predicted the commodity's bull market run would continue, possibly to as high as $1,000 an ounce.
Gold is a classic investment for those who want to protect their wealth, and gold enthusiasts say there is more incentive to do so now because the declining value of the dollar erodes buying power.
Gold and oil, along with silver and platinum, have provided a safe haven for investors wary of the dollar's continued slide, geopolitical concerns in places like Turkey, Iraq and Pakistan, as well as continued fallout from subprime lending woes and general economic uncertainty.
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"The falling dollar is the very definition of inflation," said Chip Hanlon, president of Delta Global Advisors Inc. in Huntington Beach, Calif."A weak dollar makes the cost of living for all of us go higher and gold is the best hedge against that."
Providing additional fuel for Tuesday's gold gain were several reports predicting gold's continued appreciation. UBS AG raised its one-month forecast to $850 from $700. National Bank Financial last week said gold would reach $900 in the next 12 months.
Gold futures for December delivery rose to $823.40, up $12.60, after reaching an intraday high of $828, not seen for a most-active contract since Jan. 21, 1980, the day gold reached a record $873. Gold has rallied 29 percent this year, heading for a seventh-straight annual gain.
Institutional investors started the rush to gold in early September as a hedge against the dollar's weakness. But lately, individual investors are seeking to reap profits from the gold they already have tucked away, or they want to add to their stockpiles.
At A-1 Antique Jewelers in Chicago, owner Ralph Santiago thought he'd already bought all the gold and silver that people wanted to sell 1 1/2 years ago, when gold was nearing $700 an ounce. But on some recent days, he hasn't had time to set up his display cases because he's so busy brokering the sale of one-ounce gold American Eagle, Canadian Maple Leaf and Krugerrand coins between customers.
His own profits are up, too, because the coins are appreciating in value between the time he buys them from one customer and when another customer comes in to buy them.
"For the first time in my career, I'm paying more than $800 for a one-ounce coin that I used to sell for $314," said Santiago."So far, it's just been wonderful."
Correction predicted
Analysts who follow precious metals caution individual investors to take the long view before jumping on the gold bandwagon.
"If you're buying it for the right reason, namely not to make money but to preserve capital, then you have this asset in there that is extremely liquid and it's sort of life insurance for your portfolio," said Jon Nadler, senior investment products analyst at Kitco, a precious metals bullion dealer."If you're in it for the quick buck, you're going to be extremely ecstatic one day and panicked the next."
Most analysts predict that a correction of at least $50 is likely before the end of the year, after which the price will continue its ascent, largely because of the dollar's weakness.
"It's a good time to invest but it depends on how much you want to risk," said Carlos Sanchez, a precious metals analyst at CPG Group, New York."There's a lot of speculative activity right now and many are buying in anticipation of higher prices."
Without a correction, which would remove some of the rampant speculation from the market, conditions would be ripe for a crash, said Mark Arbeter, an S&P equity technical analyst.
"The sentiment is way too bullish, and when you get so many people on the same side of the fence, you're looking toward a move," he said."We could have a pretty good correction down to the $700 to $750 level before we lift off again, so I wouldn't want to be selling my house for this."
The price run-up in gold isn't expected to cause a case of sticker shock at jewelry counters this holiday season because jewelers acquire most of their fourth-quarter inventory during the summer. The one caveat: custom-designed pieces. Otherwise, consumers will see higher prices attached to baubles in another four to six months.
Run-up ramifications
The one point missing from the"how high will it go" speculation, Nadler said, is that investors need to examine the ramifications of the run-up. If gold were to shoot up, it might be in reaction to some type of broad economic schism.
Gold reached its record in January 1980 after oil costs doubled in a year, sparking a surge in the rate of inflation to 14.8 percent.
"To argue for $900 or $1,000 gold is to ask for larger crises," he said."You have to ask yourself on the day that gold is $1,000, what will everything else I have be worth. Probably nothing, probably smoke."
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