On Friday, the dollar advanced for a fourth day versus the Japanese yen and gained on the British pound after it was reported that the re-sales of U.S. houses jumped 9.4% in September to a seasonally adjusted annual rate of 5.57 million, the highest in more than two years. And, even though the greenback rose for a third day versus the euro, it is still trading above 1.5000. The dollar index (DXY), a measure of the U.S. unit against a trade-weighted basket of currencies, rose to 75.396, up from 75.047.
It is evident the demand for gold is being driven by investors and not by the usual demand factors such as jewellery. In their latest report, the United States Mint, states that sales of its one-ounce American Eagle gold bullion coins have rocketed to some 1,030,000 year to date. Sales for the one ounce American Eagles in 2008 were 710,000 ounces and 140,000 ounces a year before.
The total amount of gold held by all the gold ETF's climbed to a new record of 1783 tons by the end of September this year.
Also, according to an article that appeared on Bloomberg, while gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal's value. Bullion hasn't kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today's dollars, that would be $2,287, according to the U.S. Labor Department's inflation calculator.
Gold would need to rise more than six-fold to top the 1980 record, using a more accurate inflation-adjustment, said John Williams, an economist and the editor of Berkeley, California- based Shadowstats.co. He said the government has understated the cost of living over the past two decades with adjustments in the way it measures the basket of goods and services monitored by the U.S. consumer price index, or CPI. "If the methodologies of measuring inflation in 1980 had been kept intact, gold would have to hit $7,150 to be the equivalent of the 1980 record," Williams said.
While my experience has taught me that it is very difficult to predict future prices, all the empirical evidence tends to indicate that we can expect much higher prices for gold, and a new high of $1100 is only weeks away.
Technicals
From a technical perspective, it looks like the precious metal is pausing and consolidating after reaching the highs of $1,070 an ounce. The break above $1000 has major technical as well as psychological significance. And, the fact that it has held above $1000 for several weeks now, the implications of this advance is setting gold up for a move to the upside that could easily see it trade at $1300. I see resistance at $1070/$1080 and then at $1100 which has been my target since September 15.
ABOUT THE AUTHOR
David Levenstein is a leading expert on investing in precious metals .He brings over 29 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He He is also a regular commentator on www.kitco.com and www.mineweb.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
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Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.