What Happens After Gold Breaks the All-Time High?

Jon A. Nones
ResourceInvestor.com
Thursday November 8, 2007

It has been described as a perfect storm. The U.S. dollar is hitting new lows against a basket of currencies, the oil price is rapidly approaching the $100 mark and reports warn that falling gold production could cause a “quantum upward change” in the price. Little doubt remains that gold will break its all-time high of $850 very soon, but few can say with confidence what will happen next.

Gold last touched $850 an ounce at the London PM fix on January 21 1980, just after the Soviet invasion of Afghanistan and the seizure of U.S. hostages in Iran. Inflation was then running in double digits in most western economies, according to sources.

This year, although political concerns are apparent with tensions increasing in the Middle East, they remain secondary to a plummeting dollar and growing unease about the U.S. economy. The dollar has fallen 10% against the euro and continues to hit new lows against a basket of currencies in the index.

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Combine this with the apparent failure of the $75 billion rescue plan by the U.S. Treasury for sub-prime mortgage securities and the possibility of mass downgrades on U.S. bond insurers, and you have gold up 32% this year. Also don’t forget that oil has topped $96 per barrel.

Gold prices have gained more than 6% in November, 13% since October and 23% since August. So far this year, gold is averaging about $678, dwarfing last year’s average of $603. Analysts are in agreement that gold is on the verge of breaking the all-time high very soon.

“I think 1980's $850 high will be taken out, if not this week then early next,” Philip Klapwijik, chairman of GFMS, told Resource Investor.

Ross Norman, director of TheBullionDesk.com, told RI that gold should break $850 by 1 p.m. London time tomorrow, adding that “it’s always on a Friday, the biggest moves are made.”

Full article here.

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