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When gold talks, people listen

Few things I have written in recent months have had as much feedback as my forecast for the price of gold at year end 2009.

Gold’s price was one of 10 forecasts that I made in my  “Class of ’63” column in the Jan. 27 Numismatic News.

I pegged the metal at $600 an ounce, far lower than the current price, because I feel that gold cannot remain an outlier while the price of most other commodities is falling.

A colleague decided to base one of our poll questions on this forecast and that increased the rate of response to me.

Naturally, most readers have disagreed with me. A few concurred with the idea of an annual price decline, but thought I had been too aggressive in choosing $600.

We have more than 10 months to go before we can assess the accuracy of the forecast. I am sticking to my guns.

I am not oblivious to the fact that gold is knocking on the door of $1,000. There are a lot of panicked buyers out there. If I owned Russian rubles, Polish zlotych, Argentine pesos or any number of other currencies, I would consider gold a welcome harbor in the economic storm.

However, my point of reference is the U.S. dollar and it is this currency that I use as a yardstick.

Simply put, the present crisis is destroying more purchasing power around the world than the U.S. government is creating with its massive increase in government loans and money supply increases.

Also, when people get scared, one of the reflexes, especially if they don’t buy gold, is to hoard cash. This increases the demand for dollars and sops up much of the extra supply created by all of these bailouts.

That’s my logic. I could be wrong, but that is the fun of forecasts. They are mine, but that doesn’t mean I don’t enjoy seeing what others are thinking. Anybody who is aware of the financial crisis can’t help but have thoughts on this topic.

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2 Responses to When gold talks, people listen

  1. Ben says:

    Another factor to consider is that when the economy starts to recover and people want to get back into the stock market or some other investment, they’ll need some cash and all their money will be locked up in gold. In one short period, the gold market will go from a buying frenzy to a selling freefall. When gold switches to a seller’s market and over-reacts, as markets do, the price of gold will drop fast and hard.

  2. Mark says:

    I expect some profit taking to occur, nothing ever travels in a straight line, but the reality is this business downturn is different from all previous downturns. We don’t have a credit crisis, we have a solvency crisis. Most of the major backs are insolvent, the government is insovlent to the tune of $12 trillion dollars. All the states are insolvent. We face a real danger that fiat currencies could collapse and be worth zero. Gold did not collapse like other commodities because unlike other commodities, gold is money. To some extent, so is silver which is why silver is recovering faster than other commodities.

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