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Capital Gold Group Report: GOLD RISES TO RECORD AS INFLATION OUTLOOK FUELS INVESTOR DEMAND



October 7, 2009 by · Leave a Comment 

Oct. 6 (Bloomberg) — Gold rose to a record on speculation that
inflation will accelerate and erode the value of the dollar, boosting
the appeal of the precious metal for investors seeking to preserve
their wealth.

Gold futures climbed as high as $1,038 an ounce
in New York, topping the previous record of $1,033.90 in March 2008.
The spot price headed for a ninth straight annual gain, the longest
rally since at least 1948. The dollar fell as much as 0.6 percent
against a basket of six major currencies.

“Gold is acting
like the ultimate currency,” said Chip Hanlon, president of Delta
Global Advisors Inc. in Huntington Beach, California. “Central banks
are following the same monetary course and trying to stimulate and
inflate their way back to growth. Everyone’s concerned about the
dollar, but it’s not like you can hate the dollar and fall in love with
the euro or the yen.”

Gold futures for December delivery
climbed $17, or 1.7 percent, to $1,034.80 an ounce at 9:36 a.m. on the
Comex division of the New York Mercantile Exchange. Prices may reach
$1,400 within six months, Hanlon said. Gold for immediate delivery in
London gained as much as 1.9 percent to a record $1,036.60. The metal
gained 17 percent this year.

Federal Reserve Chairman Ben S.
Bernanke said Sept. 15 that the worst U.S. recession since 1930s had
probably ended, and billionaire investor Warren Buffett said his
company was buying equities. Central banks lowered borrowing costs and
the Group of 20 nations has pledged about $12 trillion to revive
economic growth, leading to record inflows in some of the gold
industry’s largest exchange-traded funds.

‘Just Begun’

“Gold has just begun its ascent,” said John Brynjolfsson, the chief
investment officer of Armored Wolf LLC, a hedge fund in Aliso Viejo,
California. “As central banks print more and more money, the private
demand for gold as an investment and inflation hedge is destined to
grow. It’s pretty clear that gold will be at $2,000 by 2012, and it
could happen a lot faster.”

Expectations of higher consumer
prices are building. The difference between rates on 10-year notes and
Treasury Inflation Protected Securities, which reflects the outlook
among traders for inflation, widened to 1.84 percentage points from
almost zero at the end of 2008. It averaged 2.2 percentage points in
the past five years.

“Even though the current inflation rate
is low, the risk of a blowup in inflation in the future is becoming
higher all the time,” said Adam Farthing, Deutsche Bank AG’s head of
metals trading in Asia. “Gold is pricing that in.”

Metal Projection

Farthing projected the metal will reach $1,150 by the end of the year.

U.S. President Barack Obama increased the nation’s marketable debt to
an unprecedented $6.78 trillion as he borrows to spur the world’s
largest economy. Goldman Sachs Group Inc. predicts the country will
sell about $2.9 trillion of debt in the two years ending next
September.

“Many are expecting gold to trade at $1,050 an
ounce within the next few weeks,” said Miguel Perez-Santalla, a Heraeus
Precious Metals Management sales vice president in New York. “They are
talking about this on the back of hyperinflation. Investment money is
the driver.”

Gold held in the SPDR Gold Trust, the biggest
ETF backed by the metal, reached an all-time high of 1,134 metric tons
on June 1 and was at 1,098.07 tons yesterday. The fund has passed
Switzerland as the world’s sixth-largest gold holding.

Consumer Prices

U.S. consumer prices will expand 1 percent this quarter and 1.8 percent
in each of the following two quarters, according to the median estimate
of 49 economists surveyed by Bloomberg.

Central banks’ net
gold sales may drop to 16 tons this year, 93 percent below last year
and the lowest since 1988, researcher GFMS Ltd. said Sept. 15. That,
combined with futures trading regulation, will support demand for gold,
Deutsche Bank’s Farthing said.

The U.S. Commodity Futures
Trading Commission has tightened trading rules and pushed enforcement
of position limits amid concern that speculation drove commodity prices
to records last year. So far, new and anticipated limits have affected
the largest agricultural, natural-gas and broad-based commodity funds
in the U.S.

“There’s definitely switching going on out of
energy and agricultural commodities into gold,” Farthing said.

Other precious metals have outperformed gold this year.

Silver Futures

Silver futures for December delivery advanced 3.8 percent to $17.155 an
ounce on the Comex. The metal climbed to a 13- month high of $17.69 on
Sept. 17 and is up 52 percent this year.

An ounce of gold now
buys about 60.3 ounces of silver in London, according to Bloomberg
data. That’s down from a high of 84.4 ounces on Oct. 10, which was the
most since March 1995.

Palladium futures for December
delivery rose 70 cents, or 0.2 percent, to $304 an ounce. The
best-performing precious metal this year has gained 61 percent in 2009
on expectations for a revival in auto demand.

Platinum
futures for January delivery jumped $10.70, or 0.8 percent, to
$1,312.50 an ounce in New York, increasing their gain for the year to
39 percent. Automakers account for about 60 percent of platinum and
palladium use.

Crude-oil futures, used by some investors to
forecast inflation, have soared 60 percent this year in New York.

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