Gold spikes as recession fears spread

Prices shoot to record highs on mounting concerns that governments won't be able to grow their way out of debt.

By TheStreet Staff Aug 3, 2011 10:09AM

Gold © Comstock Images/Jupiterimagesthe streetBy Alix Steel, TheStreet

 

Updated at 3:15 p.m. ET

 

Gold prices soared Wednesday, closing in on $1,700 an ounce, as investors rushed into the haven asset on fears that world governments won't be able to spend or grow their way out of debt.

 

Gold (-GC) for December delivery rose $21.80 to settle at a record $1,666.30 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,675.90 during Wednesday's session, another record, and as low as $1,654.40. The spot gold price was a bit less enthusiastic, adding $6.70, according to Kitco's gold index.

 

Silver (-SI) settled up $1.66, or more than 4%, to $41.75 an ounce. The U.S. dollar index was down 0.7% at $74.02, while the euro was up 0.8% against the dollar.

 

Gold prices were popping on worries that global economies are slowing so much that they could face another recession, which would prevent governments from growing their way out of debt.

 

Typically, to spur growth, central banks would lower interest rates or try to pump money into the system. But rates in the U.S. are already between zero and 0.25%, and a move to inject more money into the system may not survive the political backlash, leaving the Federal Reserve's hands tied. Central banks overseas like the European Central Bank (ECB) and People's Bank of China (PBOC) are actually raising rates to fight inflation, a side effect of monetary easing.

 

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"Recent economic data shows we can't grow our way out of this, because there's no growth," points out Ralph Aldis, a co-manager of U.S. Global Investors' World Precious Minerals Fund (UNWPX). "This does not bode well for the U.S. dollar and other major currencies around the world like the euro. This is why you're seeing gold be treated more and more like a currency."

 

Although the U.S. avoided any credit downgrade, both Moody's and Standard and Poor's have issued a negative outlook. If fiscal discipline weakens or measures aren't taking to further control spending, or if the economic outlook for the U.S. tanks, then its credit rating might be downgraded.

 

According to Xinhua, Dagong, a Chinese rating agency, already downgraded the U.S. rating to A from A+ with a negative outlook. The Chinese government is the second-largest holder of U.S. Treasurys, behind only the Fed.

 

With economies in a bind, investors are rushing into gold as a safe place to stash cash. Gold is also coming into a seasonally strong buying period, with a slew of Indian festivals kicking off in August that tend to ignite the physical gold market because of jewelry purchases.

 

Mihir Dange, the founder of Arbitrage, says gold seems overbought but "considering what is going on with the economy right now the trend technically is up. . . . If we can stay above $1,650, we are looking at $1,700" an ounce. Dange is buying gold on any kind of price dip. "In these overbought situations that I have seen in the past, it means it can run up another $50-$60 before it gets a full correction."

Gold prices will now take their cue from jobs data. Wednesday's ADP employment report showed that the U.S. private sector added 114,000 jobs in July. But June's positive ADP number was a fake-out ahead of the dismal jobs number from the Labor Department, and investors appear skeptical ahead of Friday’s government report for July. Briefing.com says that the private sector may have added just 75,000 jobs and that the unemployment rate could rise to 9.3%.

 

Gold mining stocks were rallying Wednesday, while broader equities sputtered. Barrick Gold (ABX) was up 0.9% to $49.03, and Newmont Mining (NEM) was adding 1.7% at $57.06. Goldcorp (GG) was gaining 0.8% to $48.75, and AngloGold Ashanti (AU) was climbing 1.3% to $43.84.

 

Silver stocks were notching big gains as well, with Silver Wheaton (SLW) surging 2.7% to $38.27 and Silver Standard Resources (SSRI) rallying 0.8% to $28.74.

 
23Comments
Aug 3, 2011 12:56PM
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Gold will always be worth something. it doesn't have much use as a currency except when the currency has no value. I would rather have guns and ammunition than gold.
Aug 3, 2011 12:51PM
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People aren't moving to gold because they are scared. It's because the paper dollars of the word are worthless. The emperor has no clothes. 
Aug 3, 2011 1:34PM
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I sure do wish I had more faith in the people in Washington. It is times like these that I wish we had some basic minimum requirements for anyone who was thinking of running for office. We need some hard nose experienced business people to make decisions which will encourage business growth. Instead we have a community organizer and a bunch of political hacks running things.

 

The recent debt ceiling debacle showed the entire world how inept they are. It was obvious to everyone that nobody really wanted to address and fix the problem. Did they really think anyone would buy into their plan of raising the debt ceiling now and cutting spending and waste later? This was a golden opportunity to make real cuts and they didn't have the guts to deal with the real problem of runaway government spending.

 

The USA is by far the wealthiest country in the world and we cannot live within our means. It is embarrassing. We should throw the whole bunch of politicians out and start over.

Aug 3, 2011 1:08PM
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NEWSFLASH!!!! The governments will NEVERRRRRR  get out of this debt. That's the whole point of fractional reserve banking, to enslave the world in debt.
Aug 3, 2011 12:52PM
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Fools_gold I hope your not serious, gold has been highly valued throughout mans history and is worth far more than the paper we entrust today, governments have collapsed and risen yet gold has always been strong and your a fool if you think its going to change.. 
Aug 3, 2011 3:00PM
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Apparently our current administration has no plan at all. They are too busy campaigning for the 2012 election and Congress is on a Government paid vacation. As Congress crumbles in ashes before the American People the "Tea Party" is emerging from the Ashes and will reform the Government in the next 2 elections. When they take control of both the House and the Senate it will not matter who is in the WhiteHouse he will be there to sign bills and give State Dinners, Press briefings, Golf and walking the dog unless he starts working for the American People
Aug 3, 2011 12:53PM
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Buy Guns and ammo, then you can take all the food and water and gold you want.
Aug 3, 2011 1:10PM
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So there you are...sitting atop your pile of gold in an apocalyptic world.  Food and heating fuel are king and your gold is worthless.  People turn you away in your search for food as you offer your worthless glittering mineral as payment. Your cold and hungry and close to death...now what do you wish you invested in?

FARMLAND.... Rich, fertile, productive farmland....
Aug 3, 2011 2:01PM
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Fools_gold I hope your not serious, gold has been highly valued throughout mans history and is worth far more than the paper we entrust today, governments have collapsed and risen yet gold has always been strong and your a fool if you think its going to change.. 

.........

 

Unless gold is driven by investor sentiment. Which it is. (And, was it strong in the 80s?)

 

There's little industrial usage of gold, in fact, there's little real demand for gold. Despite all the reports, central banks are selling just as much gold as they are buying, there's always an oversupply of gold because it's never consumed unlike many other resources. All that means sentiment what drives the price and really nothing else. Which means gold could become less valuable for whatever the whim might be.

 

If there's actually the kind of government default globally, gold is not very liquid at all. And in such an environment where you'd expect crime, shortages of fuel, and all other interesting problems to occur

 

1) Will someone accept your gold in exchange for actual goods and services? --- There's really no gold coin currency anymore. So what are you going to give them? A whole bar? (You'd have to have a source making gold currency)

 

2) What's to stop people from just taking your gold?

 

If you really believe a government default will happen, a better investment might be learning trades (carpentry, home repair, metalworking, farming, hunting, weapons, etc) rather than accumulating gold.  

 

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thanks to the liberals and the GOP who had to compromise with themselves because the liberals HAD NO PLAN, they are kicking the can down the road some more on our debt!  Thank goodness for the tea party people who stood firm and would NOT budge!    They want to fix this country, not liberals and NOT the GOP........... 
Aug 3, 2011 3:27PM
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It may be a recession on Wall Street;  but where I live in California, make no mistake, it's a DEPRESSION.
Aug 3, 2011 4:36PM
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You ignorant people that come back with the same argument that you can't eat gold or it won't be worth anything during apocalyptic events just don't get it.  The people that have gold ALREADY have guns and ammo, food and probably land to sustain themselves during the rough times.  Gold is the ability to preserve wealth because it cannot be debased like a fiat currency. 

Actually, they did a break down on gold and most of it is held by institutional investors/retail investors/central banks.

 

What the people hold is almost nothing of all the gold that's ever been mined. So I'm kind of doubting the average institutional or retail investor is holding a gun in their closet and preparing to farm for doomsday.

 

When you think about 1 oz of gold costing $1700, it should be fairly obvious that very few people in the bottom 80% own any form of tangible gold. Gold has value that is arbitrarily assigned to it. (Think Tulips in the Netherlands) That is why you can get wild swings in the value for absolutely no reason. Run up in the 70s, complete collapse in the 80s, etc.

Aug 3, 2011 4:41PM
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I'm aware of some of the highlights and the twilights of Gold.

In my opinion(whoops, IMO) discussions pro and con are really unwinnable and debates for the most part, are futile.

Yes much of the value of Gold is based on perceptions.

Mankind has been chasing the elusive dream for centuries.Let's be HONEST.

Many rich people around the World have hoards or investments in PM's; Bullion,coin,etc,etc.

Central banks go on buying sprees and "specific selling" adjustments.

Not to only possibly take some profits, but to some ends back their currencies or Wealth of their Nations.?  If someone thinks differently, please enlighten myself and others.

 

Gold does have some industrial applications and uses; But, because of valuations,those uses are waning. Not Gone completely.

The production of gold at this time and in the past occasionally, can not meet demand.

Some might say there is not much Gold left in the World, NOT EXACTLY TRUE.

There is Gold almost everywhere in the World. Locating it and then extracting it, is the prime problem.

When the extracting and processing and delivery cost per oz. exceeds the value paid on the open market....Mines are closed or abandoned sometimes forever or on a temporary basis.

That can depend on gold value in mine,grams per ton of ore processed or just a played out mine, that is not worth mining any more. Larger companies will not expense or develope these areas.

Smaller prospectors or hobbyist might ??

And at that point, the provider of the equipment, tools and leases are the ones that are making the money; Unless someone gets real lucky.

Although Gold holds up fairly well as jewelry and some collectible coins. As value and Au oz.

Much of that can depend on quality or karat allocation? Such as 10k-24k.

There has always been a demand for the precious metal and probably will be for centuries to come, unless something takes it's place, so far nothing has sustained itself to that end.

So IMO, Gold is not worthless and will always be worth the price that people are willing to pay.

And I'm sure IMO, that the price will always fluctuate?? And Gold will always be valued.

 

Aug 3, 2011 6:27PM
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People are funny, if you have an economic meltdown, gold isn’t going to protect you from the violence that would follow. People with nothing to lose can become very dangerous very fast and hopefully the people in power are smart enough not to let it get that far.
Aug 3, 2011 4:01PM
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You ignorant people that come back with the same argument that you can't eat gold or it won't be worth anything during apocalyptic events just don't get it.  The people that have gold ALREADY have guns and ammo, food and probably land to sustain themselves during the rough times.  Gold is the ability to preserve wealth because it cannot be debased like a fiat currency. 

Aug 3, 2011 4:58PM
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Wow, came back from lunch and learned what people who don't work for a living fantasize about all day... soaring gold prices, guns and ammo, Armageddon, Tea Party triumph... you might want to google delusional disorder.  Hard to imagine people looking forward to trading a Krugarrand for a chicken, a sewing needle and some Tylenol.

 

If you are long on gold and hoping for the collapse I hope you have the real thing... otherwise you are sitting on - oh no!  Paper...

Aug 3, 2011 7:12PM
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harleyroadhawg...Is it seriously your position that we should all  buy guns and shoot and kill each other and steal each others "food and water and gold?"  It sounded like that was what you were saying. I truly hope I misunderstood you. Your suggestion is I believe the description of anarchy which is the absence of law or social organization. Anarchy means every man for himself, and the best shot gets the food and gold. Surely you do not believe that  is the way we should behave as a people or as a nation. And yet I notice that your post is approved 62 for and 36 against. Is this the course for the future of America? Before your decide to take my "food, water and gold," be advised that I also have a gun and ammo, served this nation during wartime, and know which end of the rifle to point downrange.

 

Lawman1974

Aug 3, 2011 2:02PM
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Wow $7000 an oz! Khadafi and the Chinese goverment must be estatic with what Secretary of the Treasury shipped them through the World Bank durng the Bush years. Oh didn't you hear. Yea Paulsen set up to transfer skids of pure US Minted gold out of the US to Libya and China through The World Bank  (The same "World Bank" Kahdaffi is 1/3 owner of..) We're talking Federal Reserve gold that is the exchange for what we use as currency here in this country.

It is no wonder we are targeting the assassinantion and overthrow of Ghadaffis regime..

 

Hopefully with this debt ceiling craziness The US Treasury won't be up for an audit anytime soon.. 

Aug 3, 2011 5:21PM
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Wow, came back from lunch and learned what people who don't work for a living fantasize about all day... soaring gold prices, guns and ammo, Armageddon, Tea Party triumph... you might want to google delusional disorder.

You must be new?Light bulb

 

Thanks for the funny post.Smile

Aug 3, 2011 4:59PM
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Gold doesn't make anything nor does it create anything. One day this bubble will burst and will kill more of these day traders who aren't in the market for a long haul..
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