Can $1,000 Gold Last?

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". . .this unusual convergence of factors creates favorable conditions for gold investors."

Gold has cracked the $1,000-an-ounce barrier for a second time. The first time, in March 2008, the price fell back to three digits within a couple of days. What about this time?

No one knows the answer to that question, but there are some plausible reasons why the gold price could stay higher longer this time around:
  1. We are now in what has historically been gold's strongest season of the year. September is gold's best month of the year in terms of month-over-month price appreciation, the key driver being jewelry makers stocking up for holiday buying in Asia, the Middle East and North America.

  2. This relates to the weak dollar due to prolonged rock-bottom interest rates and massive deficits being piled up in the U.S. Gold and the dollar typically move in opposite directions, so a weak dollar tends to be good for gold. That inverse relationship is intact so far in Septemberóthe DXY dollar index has lost 2% of its value so far this month September and on Friday hit a 12-month low, and over the same period spot gold has risen about 6%.

  3. Rebounding interest in commodities overall. Prices for copper, zinc and other metals have seen strength recently. This isnít surprising, given the growing signs of economic recovery and the dollar weakness.
Many are afraid that a global economic recovery will unleash inflation. Stimulus spending by the Federal Reserve and central banks around the world have added several trillion dollars to the global money supply. This will eventually erode the value of the dollar and other currencies.

There is an opposing fear that all of the stimulus spending won't be enough to get the global economy out of its sickbed. What happens then? The Fed and others have made it clear that their medicine will be more stimulus spending, which will further devalue paper currencies.

Either way, gold has appeal.

As long as the global economy is transmitting mixed signals, gold stands to benefit as an uncertainty hedge and a store of value. How long the price surpasses $1,000 remains to be seen, but this unusual convergence of factors creates favorable conditions for gold investors.

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