Spot price of gold eclipsed $935 in trading Monday, its first time above the
mark since May 22, as another fresh round of record oil prices exacerbated
existing market-wide turmoil.
In light of the Federal Reserve’s decision to hold interest rates at 2.0% -
its first rate freeze since September 2007 - many thought the dollar would
rebound, and in turn, sweep the legs out from under gold.
But the opposite proved true and gold rallied to its highest price in more
than a month.
As Money Morning contributing editor Martin
Hutchinson recently pointed out, gold remains strong because the leading central
banks around the world aren’t curbing inflation the same way, if they even are
at all.
The most recent examples are the U.S. Fed and European Central Bank, of which
the latter is strongly indicating its intension to raise interest rates at its
next meeting. And when it does, it will catapult the euro further ahead of the
dollar (despite a U.S. rate freeze) and send investors flocking back to gold.
"During that period, expect speculative demand for gold to intensify and its
price to increase steeply," Hutchinson said. "The longer the period before the
Fed is forced to increase interest rates, the higher gold will go."
So far, Hutchinson has been proven right. Since before the Fed announced its
rate freeze Wednesday, gold has gained more than $55 an ounce,
RTT News reported.
Also, gold prices are closely tied to oil prices, which broke records last
week and again Monday, trading above $143 a barrel. In recent history, the two have trended on parallel paths.
"If you look at the past 100 years, the gold price was always 10 or 12 times
that of oil prices," Moaz Barakat, the managing director of the World Gold Council, told MoneyWeek.
"With oil basically around $100 a barrel, gold prices should be at $1,000 or
$1,200. That’s the magic relationship between the two."
Profit Plays for Gold
Until the Fed reverses its monetary policy strategy and increases interest
rates, gold is one of the best investment bets available in an uncertain
economic climate.
Money Morning suggests five gold
plays to consider while gold prices are down from their highs:
- The StreetTracks Gold ETF (GLD), which tracks the gold price directly, making it the
simplest way to play gold.
