Gold Hits $1500 Per Ounce

Source: Bloomberg

The reason is clear: the U.S. dollar is going into the crapper. As I wrote in Gold Bullion: The Ultimate Hedge to Insure Your Portfolio, gold guards against currency debasement and protects the purchasing power of your wealth. According to the measuringworth.com website, the U.S. dollar lost 91.6% of its value between the end of World War II in 1945 and 2009. In other words, to have the same $1,000 worth of purchasing power in 1945 required $11,900 in 2009. In contrast, the purchasing power of gold has remained constant over the same time period. Actually, the purchasing power of gold has remained virtually constant since ancient Roman times. Now that’s protection!
Gold Goes Up When the U.S. Dollar Goes Down

The U.S. dollar may experience periodic short-term rallies – especially around June 30th when the Fed is scheduled to end its quantitative easing campaign -- but the long-term trend is still down. How can it be otherwise given the trillion dollar annual budget deficits the U.S. government is running year after year? The only way that the U.S. can get out from under its massive debt burden is to monetize the debt through inflation. The U.S. debt problem is so severe that Standard and Poor’s downgraded to “negative” the outlook for our country’s credit rating!

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Gold Hits $1500 Per Ounce

Gold Hits $1500 Per Ounce

By Jim Fink
4/20/2011
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The yellow metal has maintained its value throughout the ages and will recover from this temporary swoon to $1,360 per ounce.

-- Ben Shepherd, Personal Finance (Feb. 11, 2011)

Yesterday (April 19th), gold bullion traded at $1,500 per ounce for the first time in history:

Source: Bloomberg

The reason is clear: the U.S. dollar is going into the crapper. As I wrote in Gold Bullion: The Ultimate Hedge to Insure Your Portfolio, gold guards against currency debasement and protects the purchasing power of your wealth. According to the measuringworth.com website, the U.S. dollar lost 91.6% of its value between the end of World War II in 1945 and 2009. In other words, to have the same $1,000 worth of purchasing power in 1945 required $11,900 in 2009. In contrast, the purchasing power of gold has remained constant over the same time period. Actually, the purchasing power of gold has remained virtually constant since ancient Roman times. Now that’s protection!
Gold Goes Up When the U.S. Dollar Goes Down

The U.S. dollar may experience periodic short-term rallies – especially around June 30th when the Fed is scheduled to end its quantitative easing campaign -- but the long-term trend is still down. How can it be otherwise given the trillion dollar annual budget deficits the U.S. government is running year after year? The only way that the U.S. can get out from under its massive debt burden is to monetize the debt through inflation. The U.S. debt problem is so severe that Standard and Poor’s downgraded to “negative” the outlook for our country’s credit rating!

Take a look at the following chart which shows the inverse correlation of gold with the U.S. dollar:

Gold is Stronger than Crude Oil

If the U.S. dollar continues to go down, that means only one thing: gold is going to continue going up. Goldman Sachs (NYSE: GS) agrees. As I wrote last week in Goldman Sachs Recommends Selling Commodities, Goldman didn’t recommend selling all commodities. In fact, while Goldman recommended selling crude oil and industrial metals, it continued to recommend buying gold and soybeans. As the following chart shows, gold has significantly outperformed Brent rude oil over the past three years:

Gold’s outperformance compared to oil is quite extraordinary when you take into account the price spike oil has seen from the recent Middle East political turmoil. Part of the reason may be the continued supply glut of natural gas, which can act as a partial substitute for oil and may be keeping pressure on oil going even higher.

How high can gold go? Many analysts believe gold will hit at least $2,100 an ounce is in the cards over the next three years and upwards of $5,000 an ounce by the end of the decade. While many commodities have surpassed their inflation-adjusted highs of 1980, gold has – hard to believe – lagged and would need to top $2,000 an ounce to surpass its 1980 high.
Find the Best Gold Mutual Fund with the Help of Personal Finance!

Ben Shepherd, mutual fund editor of Personal Finance, believes gold is going much higher for reasons other than just U.S. currency debasement. He recently told subscribers that increasing consumer demand for gold jewelry in high-growth emerging markets is also fueling gold’s rise:

Not only is gold the ultimate insurance in an uncertain market, but the precious metal also remains in high demand. According to the World Gold Council, Chinese demand for gold amounts to roughly 530 tons per year. The country’s gold imports rose fivefold in 2010. Consumers and retail investors accounted for much of this spike; demand for gold in jewelry and as an investment has increased as fears of inflation intensify.

To capitalize on gold’s continued meteoric rise, Ben likes one particular gold-focused mutual fund that includes both bullion and gold mining stocks. Mr. Shepherd describes the mutual fund this way:

A track record of success and an extraordinarily low expense ratio of 0.94 percent -- the average is 1.5 percent -- make this fund a winner

http://www.investingdaily.com/id/18585/gold-hits-1500-per-ounce.html