Spot Gold Prices: Headed Higher?

November 5, 2010

By Andrea Tse

NEW YORK (TheStreet) -- Spot gold prices were flat Friday afternoon and fending off the stronger dollar as gold advisors continued eying gold at $1,400 ... and beyond.

UBS Investment Research's managing director Nicholas Smithie said gold's upward trajectory is logical.


"Gold is moving up since central banks are debasing fiat currency, and in the same way that equities, real estate and commodities move up, so gold moves up," Smithie said. "To me, it is perfectly logical that gold should be moving up as a substitute for fiat currency.


"What has been the attraction of fiat currency? You've got transactional ability, you've got a store of value, and you've got a liquidity preference. But the store of value is eroded by current monetary policy. So, why store your money in dollars if you can store it in gold? And that's what's going on."


According to S&P Equity Research Services' Alec Young, the U.S. dollar index has plunged 8.8% since August 31. "In addition to stocks, commodities and bonds of all stripes are soaring as the dollar weakens amid fears of rampant Fed money printing, in our view," Young noted in an equity report. The U.S. dollar index was strengthening Friday afternoon, up 0.9% to $76.60.


Gregory Marshall, president and CEO of Global Asset Management, a gold bull, wasn't surprised by the dollar index's advancement Friday. He said that no markets go straight up or straight down and with the dollar beat-down over the last few days, a small ensuing bounce was expected. "Even a dead cat will bounce if you drop it from the rooftop," he said, citing a classic Wall Street metaphor.


James DiGeorgia, editor of The Gold and Energy Advisor said QE2 will drop the value of the U.S. dollar by 15% to 25%. He said that that means gold prices, which are approaching $1,400 or even higher depending on market sentiment, could climb even higher, to $2,000. If the drop comes quickly over the next 18 to 24 months, it would "set off a currency and bond market panic that severely disrupts the world's financial markets and world economy," creating "fireworks we've seen so far look like a walk in the park," he said in a note.


Global Asset Management's Marshall said he sees gold hitting $1,500 in the not so distant future, given that U.S. economic policies look to be in favor a weaker dollar. He was eying $1,500 gold even when it was at $1,200. He said the fundamentals for gold are very strong and is only a few dollars away from $1,400.

·         New York spot gold prices were trading at $1,393.50 an ounce.


·         New York spot silver prices were up 38 cents, or 1.4%, to $26.75.


·         New York spot platinum prices were falling by $16, or 0.9%, to $1,765 an ounce, while its sister metal was gaining ground.

New York spot palladium prices were adding $2, or 0.3%, to $683 an ounce.


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