From the August 01, 2011 issue of Futures Magazine • Subscribe!

Gold gleaming bright

Gold recently made new record highs hitting prices over the $1,600 mark. With uncertainty manifest in almost every quarter of the globe, analysts doubt gold will give-up much of this new high-water mark.

Keith Springer, president of Springer Financial Advisors, says debt policies in the European Union and the United States were the latest catalysts for moves in gold. “Typically gold acts as an inflation hedge, but not currently. There are two major reasons people are buying gold now. The first is using it as a catastrophic hedge, but primarily now it’s acting as a third currency outside the euro and dollar. As the European Union prints more money for the bailout, it devalues its currency,” he says. “The problem is that the United States is devaluing its currency as well. So where is an investor to go? Gold is the third currency.” Springer says investors need to pay close attention to debt talks and warns that a third round of quantitative easing from the Fed could really push prices to the upside. He is targeting $1,650 by the middle of August and sees $1,800-$1,850 by the end of the year.

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Tom Winmill, portfolio manager at Midas Funds, agrees that debt uncertainties have helped push prices, but says a slowing of demand from other parts of the world, particularly India, may put a cap on further gains. “There’s a lot of demand destruction, particularly from jewelers. Typically, this is a seasonally strong period for gold because jewelers are putting in their orders for bullion for [upcoming holidays]. This year, those orders currently off. On the other hand, there’s a lot of scrap hitting the market,” he says. Winmill says the largest pressure on gold will come from scrap hitting the market and low demand from fabricators. He is expecting volatility going forward, but sees mid-August prices around $1,600 and about the same for the end of the year.

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