Gold and silver prices dipped Friday as the dollar
strengthened against global currencies on safe-haven buying that
followed disappointing U.S. consumer sentiment and purchasing
managers data. An economist warns a recession could lead to a
meltdown in precious metals despite all the bullishness from
global stimulus programs.
Spot gold prices shed 0.23% to $1774 an ounce intraday. During
the quarter, it reached its highest price of 2012 and came within
six percentage points of its all-time nominal high from 12 months
This month Prestige Economics of Austin, Texas, raised its
2012 price target on the yellow metal to $1,684 an ounce from
$1,649 per ounce. It also raised its 2013 target to $1,900 from
$1,750 an ounce.
"The introduction of the European Central Bank's Outright
Monetary Transactions (OMT) and the implementation of the Federal
Reserve's quantitative easing ad infinitum greatly improved the
prospects that our forecast of dollar weakness will come to
fruition at a swift pace," Jason Schenker, president of Prestige
wrote in his latest monthly outlook released Friday. "The
downside risks to gold prices have been greatly reduced now that
the Fed is on an endless buying spree of mortgage-backed
Gold prices are rising on expectations that central banks
pumping up global money supply will spark inflation. The U.S. and
European stimulus programs led to a domino effect at central
banks around the world.
Japan and China have started their quantitative easing. India
and Brazil lowered interest rates to spur growth. Singapore says
it's ready to take action if needed.
"We have a global currency war where everyone is trying to
devalue their currencies. In that case the only real currency is
gold or silver," said Matthew Tuttle of Tuttle Wealth Management
in Stamford, Conn. with about $100 million in assets.
Central banks in Russia, China, India and other countries are
buying gold to diversify their reserves. Political conflict, such
as that between China and Japan and in the Middle East, has also
traditionally been positive for gold.
Why Gold Could Lose Its Luster
The Fed's newly created trillions are parked in bond
portfolios at banks instead of being lent out as intended, says
John Browne, senior economic consultant to Euro Pacific Capital
in Westport, Conn. The newly printed money isn't fueling
inflation as gold buyers expect. And if the U.S. goes into a
recession, gold investors may sell their gold to raise cash and
meet margin calls ignited by falling stock prices.
"In recessions, cash becomes increasingly scarce and real
assets, including commodities, fall in price," Browne wrote in a
client note. "As a commodity, gold should fall in price as
recession becomes manifest."
"The possibility is rising of a worldwide recession, which
normally tends to push down asset prices, particularly for stocks
dependent on corporate earnings," he added.
PowerShares DB US Dollar Index Bullish (
), measuring the dollar against a basket of foreign currencies,
rose inched up 0.39% to 21.90 Friday. It shed 1.8% in September
and fell 2.5% for third quarter.
SPDR Gold Shares (
) shed 0.69% to 171.64 Friday. It climbed 4.5% in September and
10.6% for the quarter.
Market Vectors Gold Miners ETF (
) fell 0.20% to 53.68. GDX surged 12% in September and 20% in
Spot silver prices fell 0.38% to $34.63 an ounce.
Schenker projects silver prices will average $31 an ounce in
2012 and $34.50 in 2013.
IShares Silver Trust (
) gave back 0.28% to 33.30 on Friday. It added 8.2% for the month
and a robust 25% for the quarter.
Global X Silver Miners ETF (
) let up 0.14% to 24.93. SIL returned 16.3% in September and a
whopping 34% in the third quarter.
Mutual funds specializing in gold and precious metals absorbed
more than 90% of the $1.6 billion that flowed into commodity
sector funds last week on fears that global stimulus programs
will erode the value of fiat currencies, according to EPFR
The Institute for Supply Management-Chicago said its business
barometer fell to 49.7 from 53 in August. Economists expected a
reading of 52.8. It dropped for the first time in three years,
signaling contraction. Readings below 50 mean contraction, and
readings above it mean expansion.
The Thomson Reuters/University of Michigan Consumer Sentiment
Index rose to 78.3 this month from 74.3 in August. Economists
projected a reading of 79.
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