Gold pierced $1200 for the first time in history on December 2nd, 2009. Gold started the year far lower in the mid- $800 range in January. Today gold is trading about $1,100.00 Worldwide investor and Central Bank demand of gold is lifting the price up. Gold appears to be undergoing a secular restoration of its role as a central asset for monetary and financial purposes. Nixon cut the last vestigial ties to the Gold Standard 38 years ago. In 2009 Gold has reclaimed it place of history as a store of value during tough economic times according to Jeff Christian of CPM Group.
The Central Banks of India, China, Russia have been increasing gold positions after decades of large government sales. The IMF projected sale of 403 metric tons of gold will likely be the last large sales program. This IMF sale is the only major sale announced to date. The Central Bank of India purchased 200 metric tons from the IMF in November. Interestingly, gold rose from $1100 to pierce $1200 whereas in the past decades gold often dropped after large sales.
Electronic Trading Funds have been exploding worldwide. The gold bugs have returned. For example, the SPDR Gold Trust is the biggest ETF backed by metal. SPDR is just one of several ETF’s. Per Bloomberg news in June, the SPDR ETF reached 1.134 metric tons of gold and passed Switzerland as the world’s 6th largest gold holding. This represents about $36.45 billion if gold is valued at $1,000 per ounce. It’s hard to argue against the logic to buy gold after the recent stock market crash as well as stories of Enron, Ponzi schemes of Bernie Madoff, Tom Petters and such.
In 1717 Sir Isaac Newton is credited with inadvertently creating the British Gold Standard. The most famous scientist of his time later in life became Master of the Mint for England. Shortly afterwards, he dabbled in economic theory that was adapted which lead to the British Gold Standard and away from the bimetallic gold and silver standard of the day. Will we see that each action has an opposite and equal reaction as Newton’s Third Law of Motion states? Is an asset bubble in metals developing?
The value of the U.S. dollar has fallen since 9/11 and the stock market crash. The Great Recession has set-in. Gold, silver and platinum have risen sharply since 9/11. For decades since the time of Nixon, the price of gold and silver and the value of the dollar moved in opposite directions. As of 2009, this trend has not always followed suit.
John Maguire President Maguire & Stricland Refining
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