The stability of gold has been an attractive characteristic for investors still feeling uneasy about the volatility in the U.S. stock market and the viability of an economic recovery, as bullion has posted a rise of 13% so far in 2009.
A weaker U.S. dollar has also helped paint the bullish picture; and with a rally today, gold will extend its winning streak to nine trading sessions – a nine-month high for the precious metal. Gold traded as high as $1,007.70 an ounce yesterday, the highest price since March 2008.
“The dollar remains the key factor determining gold’s direction,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in an analyst report. “If the dollar continues to be pressured by investors selling it to buy riskier assets, bullion could extend gains. If gold can keep above $1,000 this week, it may pave the way for a test of the record.”
The run-up in gold prices can also be attributed to the popularity of gold ETFs, otherwise known as Exchange Traded Funds. According to UBS, gold ETF holdings have surged 42% globally, or 16 million ounces, since the beginning of 2009 as investors flock toward tangible assets amid inflationary fears. The ETFs now hold a total of 54.23 million ounces of gold, close to last year’s total world production.
“Clearly part of this [run-up in gold] is concern about further weakness in the dollar,” said Daniel Smith, an analyst at Standard Chartered to Reuters. “People are piling into gold in all sorts of different ways, both consumers and investors.”
Smith added that a more cautious tone to the wider markets, after a rally in asset prices over the summer months, and expectations China may move to diversify its foreign exchange holdings away from the dollar were also lending support to the precious metal.
“Our view is that [gold] will keep pushing higher over the next few weeks and toward the end of the year, and that it will actually break through the previous high,” he said.
Barrick Gold Cuts Hedges
Gold prices also rallied yesterday off of an announcement from the world’s largest gold miner, Barrick Gold, that it plans to eliminate its outstanding fixed-price gold hedges and a proportion of its floating hedges.
According to Reuters, miners used to hedge by selling forward their unmined production as a means to lock in prices. However, as prices have risen in recent years, they have tended to de-hedge, or cut back their hedged positions, to take advantage of price gains.
Barrick (ABX:NYSE) also added that it plans to record $5.6 billion in third-quarter costs to eliminate the hedges as it bets that bullion prices will climb. The company said it had contracts for 9.5 million ounces of gold as of Sept. 7.
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