Happy days are here again for gold bugs as the price of bullion finally broke the $850 (U.S.) record set nearly 30 years ago – and the industry sees it heading toward $1,000 an ounce in the coming months.
"It's unquestionably going to be a golden year," said analyst John Ing of Maison Placements Canada Inc.
The first trading day of 2008 began with a bang for bullion as the spot price jumped $22.10 in New York to close at $857 an ounce.
It's all thanks to a decidedly sluggish outlook for the U.S. economy, which hurt the greenback yesterday. Gold and the U.S. dollar tend to move in opposite directions.
Other commodities joined the party yesterday – including record highs for oil and platinum – along with a boost in copper and silver prices. Though gold stocks have been slow to follow gold's rise, the sector on the Toronto Stock Exchange rose 7.5 per cent with companies including Barrick Gold Corp. and Kinross Gold Corp. enjoying the ride.
Bullion's rise comes on the heels of an increase last year of more than 30 per cent. Last November, it almost hit its old 1980 record before an anticipated correction before Christmas.
"It's a resumption of last year's rally," Ing said.
"The next target is $1,000 an ounce, which is quite realistic in the first part of this year."
He pointed to strong supply-and-demand fundamentals, including the scarcity of new gold deposits globally along with voracious demand from China and India in the midst of one of the hottest bull markets ever for all things metallic.
Bullion is also widely considered a safe haven in which to weather currency storms and uncertain times, and these days that qualifies.
Last week's assassination of Pakistani opposition leader Benazir Bhutto has only increased worries on the geo-political front.
"The recent rise in gold is a combination of things. The U.S. is entering a recession and that has increased (expectations) of interest rate cuts," said analyst Craig Stanley of Desjardins Securities.
Extending last year's weakness, the U.S. dollar fell again yesterday against the euro and the yen after a new report showed U.S. manufacturing unexpectedly contracted last month.
The U.S. news follows last week's spate of housing figures also indicating a slowdown.
That in turn caused investors to hedge against both inflation fears and the expected continuing decline in the U.S. dollar by flocking to gold.
Stanley says gold has also been helped by the fact that big producers such as Barrick and Newmont Mining Corp. have unwound their controversial hedge books – the strategy of forward selling to protect against a falling gold price – signalling confidence in the metal.
Gold may have surpassed the old spot price closing record, but analysts note that in inflation-adjusted terms, $850 (U.S.) an ounce would be $2,200 in the current marketplace.
When gold last hit a record on Jan. 21, 1980, it was propped up by many of the same things as today: the weakening U.S. currency and higher oil prices. Times were also turbulent with the hostage crisis in Iran and the Russian invasion of Afghanistan.
Gold faced tough times after that peak, sliding into a bear market through most of the following 20 years as investors turned to stock markets and the U.S. dollar, with inflation falling to historic lows. Gold has since rallied, rising every year for the last seven years.