IAU: Gold Regains Momentum After Recent Slump

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For those investors willing to bet that gold’s recent strength will continue, IAU’s share price may present an attractive opportunity to enter the gold market. Recent bailouts by global governments could prove to be inflationary in the near term. Whether the new administration decides to raise taxes or print money to finance this package, both options could weaken the dollar and strengthen the price of gold—and IAU—in 2009.

From October 14 through October 29, iShares Comex Gold ETF (IAU) rejoined the Sector Momentum Tracker’s top ten—holding the No. 3 spot in our rankings for that period. This performance harkened back to IAU’s exceptional performance in late 2007, when the fund held the No. 1 spot in our rankings from November 20, 2007, to February 19, 2008. Commodities have weakened significantly since gold’s high of $1,033 per ounce in March, but some investors now believe that gold’s recent bounce may be a sign of an upswing.

IAU’s recent strength reflects the bounce that investors have seen in spot gold prices since late October—when gold hit a low of $680.80. Gold rose more than 3 percent on November 3 on a slightly weaker dollar, while investors eyed the currency going into Election Day...

In addition to the election talk, analysts also look toward global rate cuts to boost gold. Major central banks are expected to continue cutting rates in the future, and the issues surrounding inflation could help to strengthen IAU’s value. Australia cut interest rates by 75 basis points on Tuesday on the heels of cuts in China, U.S. and Japan last week. Analysts predict that euro zone countries and Britain will also cut rates next week, potentially making gold more attractive as interest rates decrease...

For those investors willing to bet that gold’s recent strength will continue, IAU’s share price may present an attractive opportunity to enter the gold market. Recent bailouts by global governments—particularly the United States’ $700 billion package—could prove to be inflationary in the near term. Whether the new administration decides to raise taxes or print money to finance this package, both options could weaken the dollar and strengthen the price of gold—and IAU—in 2009.

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