All that glitters is not gold -- platinum and palladium are on even hotter streaks -- but who cares? The yellow metal hit another nominal record high Wednesday, briefly topping $1,217 an ounce before settling at $1,213, and it shows no sign of melting down anytime soon.
The Incredible Shrinking Dollar is mostly to blame. The Federal Reserve wants a cheap dollar to help boost exports and create jobs, but so far it's just made the buck the biggest geek at the currency prom. Central banks and institutional investors at home and abroad feel pretty stupid holding rapidly depreciating greenbacks, so they're dumping dollars and hoarding gold.
A few weeks ago India's purchase of $7 billion in gold pushed the yellow metal to a new high. These days it's news out of China that the country's gold demand is on pace to increase 14% over last year. Throw in professional speculation, fund buying, some long-term inflation fears and retail investors piling on, and suddenly gold is an asset class -- a get-rich-quick scheme more than an inflation hedge.
Even super-bear David Rosenberg, chief economist and strategist at Canada's Gluskin Sheff, is a full-on gold bug these days. Rosie, as he is familiarly known, is one of the few prognosticators who saw the great crash coming. Usually he's like Mikey, the kid from the old Life cereal commercial: He hates everything. But Rosenberg is now calling himself Goldberg. Really.
The precious metal just capped its best month in a year, has gained 37% in 2009 and appears to have lots more upside ahead, Goldie wrote in a report to clients. The economist believes the ductile metal is in a secular bull market and he's been modeling scenarios that could push gold to real record highs. (As we've written before, gold is not at an all-time high. It's an inflation hedge, for crying out loud. Talking about gold prices without factoring in inflation -- again, as we've said before -- is like doing Newtonian physics without applying the law of gravity. The precious metal would need to hit more than $2,225 to set a true record.)
Anyway, if China were to lift its gold reserves to 5,000 tonnes, that shift in demand would boost the gold price to around $2,000, Goldie figures. "[And] if China moves towards 10,000 tonnes, well, that would end up taking the gold price to $2,623 an ounce if our calculations are in the ball-park," Goldie says.
Naturally not everyone is enamored of gold. Roman Scott, economic spokesman for the British Chamber of Commerce and managing director of Calamander Capital, told CNBC that the bull market in gold "could potentially be a bit of a bubble," and he very well could be right. But it's hard to see how the bubble could pop anytime soon.
As long as the dollar is in the dumps, gold should continue to shine -- and a weak dollar is exactly what the U.S. needs to reflate its way out of its massive debt obligations. So if you have any hopes for a stronger greenback anytime soon, we'll leave you with this startling fact, courtesy of Goldie's Wednesday report: "Consider that the U.S. is 233 years old and yet half of the monetary base has been created since Helicopter Ben took over as pilot back in 2006."
No wonder the world is dissing the dollar and going gangbusters for gold.
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