Gold catapults to new high

Prices make a run for $1,900 an ounce as investors worry about an economic slowdown.

By TheStreet Staff Aug 19, 2011 9:53AM

the streetGold © Comstock Images/JupiterimagesBy Alix Steel, TheStreet


Updated at 4:03 p.m. ET


Gold prices shot to another record Friday as fears of a global double-dip recession sent investors piling into the metal. But many experts warn that time may be running out for the current rally.


Gold (-GC) for December delivery skyrocketed $30.20, or 1.7%, to settle at a record $1,852.20 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,881.40, a new intraday record, and as low as $1,824.50, while the spot gold price was adding $21.50, according to Kitco's gold index.

Silver (-SI) soared $1.74, or more than 4%, to finish at $42.43 an ounce. The U.S. dollar index was off 0.4% at $73.95, while the euro was gaining 0.4% against the dollar.

Post continues after video.

Gold prices have risen more than 6% in just a week as investors gobbled up the metal as protection against slowing growth around the world, from China to Germany to the U.S. A day after Morgan Stanley (MS) lowered U.S. growth prospects for 2011 and 2012, gold prices showed no signs of slowing.


Citigroup (C) also joined the fray, lowering 2011 U.S. growth from 1.7% to 1.6% and for 2012 to 2.1% from 2.7%. While growth signs point to the possibility of another recession, Bank of America (BAC) may slash 10,000 jobs, according to The Wall Street Journal, which is ominous for any attempt at a recovery in employment.

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Investors don't really have a lot of options for "safe" places to stash cash, as Hewlett-Packard's (HPQ) dismal 2011 outlook weighed on stocks Friday. The popular gold ETF SPDR Gold Shares (GLD) added 15 tons Thursday to 1,286, but many experts are now bracing for a pullback after gold's explosive run.


David Banister, the chief investment strategist at, said gold will peak out at either $1,862, $1,880 or $1,907 an ounce.


"One of those three is going to peak out this parabolic blow-off-top rally and be followed by a great opportunity to profit by shorting," or betting against the metal, he said.


Banister, who thinks gold's long-term bull run is not over yet, said peaks are typically followed by 15%-20% corrections, which would take gold to the $1,500 level.


Bob Haber, the CEO of Haber Trilix, thinks that gold has not seen its final highs but that there are technical signals that are screaming overbought conditions.


"There has developed short-term bullishness which probably needs to be unrewarded, meaning a short, sharp correction," he said.


Of course, experts can't predict when that correction will come, but gold's status as a haven looks safe for Friday. A perfect storm of high inflation in emerging markets, negative real interest rates worldwide and possibly more currency debasement from central banks are all supporting gold prices.

Barclays Capital wrote in a recent note that "every outbreak of financial fears has coincided with a rally in investment demand for gold. . . . This has also been the case in the past few months: July data shows that gold ETPs saw the largest net inflows since May 2010."


The research firm remains bullish on gold, saying persistent economic uncertainty "bodes well for history's oldest form of wealth."


Gold mining stocks rallied Friday despite a sell-off in broader equities that saw the Dow Jones Industrial Average ($INDU) shed 173 points. Barrick Gold (ABX) gained 1.8% to $50.78, and Newmont Mining (NEM) was soared 2.8% to finish at $60.08. Kinross Gold (KGC) added 2.1% to close at $16.79, and Goldcorp (GG) surged 3.5% to $51.65.


Aug 19, 2011 2:27PM

I really do not understand the comments such as "can you eat a piece of gold?" or "what am I supposed to do, put gold in the gas pump machine?".

Can you eat a dollar? No, of course not. The dollar is used as a currency to trade for goods. People investing in gold believe that the dollar will continue to be manipulated until it is eventually of no value and that citizens would turn to gold to use as a new currency. Why do they believe this? Because historically, gold has provided a safe haven for citizens when their country's fiat money system becomes completely broken. Gold's history as an alternative currency and the inability for it to be drastically manipulated by governments (gold cannot be endlessly printed) means that it is the next top contender for a currency and it is likely that people will grant gold its value, just like people choose to grant the dollar its (reduced) value right now. Gold tends to be what people look to in a time of financial crisis. And given how people are investing in gold right now, it is clear that there are people out who would be willing to grant gold value as the next viable currency. 

And no, if things were to get bad and gold began trading as a currency, you would not "throw a chunk of gold" into the gas pump. Businesses that even survived the huge economic plunge would have to quickly adapt. But really, things like gasoline would likely be the least of your worries. Most people would be unemployed, the dollar could be of almost no value, and many businesses would have gone bankrupt. Unless you were filthy rich, invested in gold before its value skyrocketed, or a farmer with a gun, you would be in trouble. But assuming the gas station received its shipment of gas, assuming that you did not already need to sell your car to stay afloat, and assuming you had enough dollars or gold to purchase gas, you would not be putting gold into the machine. I imagine that you would go inside, trade the gold, and a gas attendant would give you the gas.

Why would world banks and the banks of industrialized nations be stockpiling gold right now? They do it to protect themselves because if and when a fiat currency fails, and if citizens begin granting gold its value, the governments want to remain in power. Given the limited utility of gold, I cannot think of any other reason why a government or bank would be spending money right now to store this metal away other than to preserve wealth and power in a time of crisis.

Now, investing in emergency training and stockpiling certain food items, has great value as well. The loss of the U.S. dollar as the world currency would be devastating and things could certainly become unstable. There is a possibility that if the dollar were to fall, your food could have a high value until citizens and businesses started to adapt to a new currency. But, regardless of whether or not gold becomes a new currency, your food does not last forever. Unless you are growing it yourself, how would you obtain new food if you have no other items to barter and your dollars are now worthless? I often think that anybody unemployed would start having to offer manual labor to local farms in exchange for food.

The truth is, that nobody truly knows what is going to happen. If you invest in gold and there are major U.S. economic and foreign policy corrections, you could have a very poor investment on your hands. If we continue along the same path that we have been for a while now, people who have invested in gold will very likely be in a very safe place when things go sour. The bottom line is that you need to be prepared for the worst. Diversify your portfolio, bet with the dollar, bet against the dollar. Hold some gold. Hold some food. Don't be dumb.

Aug 19, 2011 12:22PM
pelosi and reid announced today that congress will lower congressional pensions and salaries by 40% to help the poor and needy throughout the depression.
Aug 19, 2011 12:22PM

Keynsian bobble heads better start learning Austrian economics quick like…Gold may be due a small correction but overall it's not going anywhere until monetary policy changes. Nothing can change with record low rates till 2013 and a print, print, print mind set...When we ditched our last link to the Gold standard in 1971 Nixion said "we're all Keynsians now". If you saved a dollar in 1971, it now has 15 cents of purchasing power. How's that philosophy working out? This could be the start of hyperinflation Gold being one of the 1st indicators...


Ludwig Von Mises is your friend : )

Aug 19, 2011 3:04PM
Nice to see the blind economics 101 failures leading the blind economics 101 morons, as usual. Eye-rolling Gold coins will always have value anywhere in the world and at any given time in history. Fiat currency fluctuates and is only valuable in a nation(s) that is/are financially strong and stable. In a nutshell, have both gold coins and Yuans. Gold is always Empiric and the strong currency at present is always King! Class is dismissed! Nerd
Aug 19, 2011 1:32PM

You Gold haters better wake up and pay attention to emerging markets and the amount Gold they are buying, it's not just the USA...we're broke. But I guess everyone else is dumb too right? LMAO!


Fiat currency always returns to it's intrinsic value of zero,...learn your history!

Aug 19, 2011 1:26PM
you gold and silver bashers have been talking trash for a decade-----and you have led working people to the slaughter house with your horrible advice to stay in mutual funds and the dollar---now you continue taking trash even though you have had egg on your face for 10 years---maybe it is time to shut your yap----if you work for a living do not listen to these fools telling you to "stay in the market for the long term" crap. Get out of the market completely---buy gold and silver while you still can or listen to these fools who have led you to slaughter for the last 10 years
Aug 19, 2011 3:16PM
I've seen every excuse in the book from this administration, except for the truth. The price of gold in dollars is directly affected by factors affecting dollars! In other words, the Treasury's monetizing of the massive increase in debt (printing more dollars) is devaluing the dollar, and the resultant price increases in consumer goods such as food and gasoline are the inevitable result. When the dollar is unstable, investors move to more stable investments.
Aug 19, 2011 1:28PM
As long as the Gov't keeps spending out of control and selling our debts to China and other countries Gold is a great investment. And if you buy gold coins the gov't can't take it away, bullion - yes,coins - no! So if your thinking of investing in gold, just watch Washington and how both parties stumble and only fiscical responsibility will lower gold prices. RIGHT!
Aug 19, 2011 3:46PM

It's sounds like Gold makes people jealous!

Aug 19, 2011 1:29PM
I don't care if my whole basement is stacked with gold bars like Fort K. Can I slide one in the gas pump reader?
I can sell my Gold ETF right now and move that money to my savings or checking account lickity split! Last time I checked gas stations we're cool with debit cards...
Aug 19, 2011 3:22PM
it will go up to 2100. the economy is weak and adjusting constantly. mortgage interest rates will flag, also, to stimulate it. great time to buy real estate!
Aug 19, 2011 12:44PM
anyone holding Gold will have it confiscated by the Treasury and replaced with currency. 
Negative Nancy give me a break, how are they going to take my ETF?
 You can eat a dollar if you like. Though, all the Cocaine, or other Drugs, and germs on it may make you sick.

Will this be,I'm out of food,I'm out of water,I'm out of bullets ,I've lost my gun,but I've got all the gold I can carry?Wink






I used spell check!

Aug 19, 2011 2:12PM
I suppose Mr. O's friends all bought gold today, a lot of it.        
Aug 19, 2011 12:42PM
Yes those investing in Gold have been profiting, but I have to think as a hedge or guarantee of a complete financial collapse in our system a caveat is in order. If we have a complete financial meltdown, it is likely that anyone holding Gold will have it confiscated by the Treasury and replaced with currency. This will be no different than during the Great Depression when FDR issued Presidential Executive order 6102 on 4/5/1933.  To think that Obama wouldn't do exactly that is folly.
Aug 19, 2011 5:12PM
I don't get the value of gold. It seriously has no true redeeming value to me other than this mindset investors and thus the public seem to put on it for decades. A TV has a purpose and thus a value. It entertains. A loaf of bread has value. It is food. What is gold? A heavy paperweight. In any decent quantities it is near impossible to move around. I think about it like this, if the economy completely collapsed tomorrow, would I care to own gold? I guess maybe there are enough idiots out there to value it but I wouldn't. Too heavy and no real use. I can't burn it for heat or power. I can't eat it. I can't use it for shelter or clothing. It doesn't provide any entertainment. Truly nothing worth while about it other than history says people love gold and mindless investors continue to give it value.

Gasoline, coal, food, water, wood, cotton, etc have real value and yet are all but free compared to gold. To me, it is a messed up mindset but whatever. You guys pay your $1,850 for a yellow paperweight that weighs an ounce.
Aug 19, 2011 3:42PM
David says gold will peak-out at $1,862. . or $1,880. . or $1,907. . Or? . . or? . .  Nice writing. 
Who's your editor? Who wrote that junk line? . . . .  it's obvious you are clueless. . so is David. 
What you or your other rocket scientists are NOT explaining to the general public is that GOLD has no real monetary value. You cannot buy goods or services with it. . it's not a currency, it's a yellow rock. It's only worth is what you are betting against it. Right now stocks are falling so people pulling their money out and placing . . i mean. . buying more gold. . thus the increase in price. No one can predict the "peak" . . .  if you could do that. . . you are then saying that you can predict the stock market. . GOOD LUCK! 
Aug 19, 2011 12:52PM
Gold is only a psychological safety net. 2011 is NOT like the 1970's or the middle ages. The rules and the environment has changed greatly in just the last 10 years. So just as in the NYSE not being played like it was 10-20 years ago due to technology and the world getting smaller because of it, gold can't be relied upon like in the past.

Aug 19, 2011 1:20PM

I don't care if my whole basement is stacked with gold bars like Fort K. Can I slide one in the gas pump reader? The only people laughing right now are the people selling gold to people at an all time high.

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