Almost forty years after the U.S. officially abandoned the gold standard and its $35-an-ounce peg, the price of spot gold on Friday reached $1258 an ounce, another record, on Friday.
The uptrend won't last much longer, one analyst predicts.
Brian G. Belski, chief investment strategist at Oppenheimer & Co., wrote in a report that even on an inflation-adjusted basis, gold prices are higher now — two standard deviations above their long-term averages —than they've been since the early 1980s, when the U.S. was experiencing double-digit inflation.
The metal is also “out of whack” with other commodities, a trend which has caused some puzzlement, even in places like the Federal Reserve.
“Gold is out there doing something very different from the rest of the commodity group,” Ben Bernanke, chairman of the Federal Reserve, said earlier this month at a hearing before members of the House of Representatives,
“I don't fully understand the movements in the gold price, but I think there's a great deal of uncertainty and anxiety in financial markets right now,” the Fed chief said. “And some people believe that holding gold will be a hedge against many other investments which they view as risky and hard to predict.”
Whatever the reasons, investors are caught up in a “momentum play” which has reached “bubble-type status,” Mr. Belski said in an interview today, following up on his June 14 report.
“People are chasing gold,” he said, and they've also become very emotional, which in itself gives the analyst pause. Mr. Belski said he received several “spirited” e-mails and phone calls this week, from people wanting to argue with his stance.
“When you see the type of emotional response that we've received as analysts, that's a signal to get out.”
For investors who don't sell soon, the fall will be sharp and messy, Mr. Belski predicted. “There has never been an asset bubble in the history of investing, that has unwound in an orderly fashion,” he said. The dollar is likely to strengthen further as the economy recovers and inflation picks up, he said, and that “can, will and should ultimately hurt gold.”
Two voices on the other side of the debate this week were
UBS AG analysts Dirk Faltin, head of thematic research, and Andreas Höfert, global head of wealth management research. The pair wrote in a report that gold is no commodity, but is in fact more like the truest and best currency available. In a world “drowning in debt,” they wrote, it has only further to run. Mr. Faltin and Mr. Höfert wrote that they expect spot gold to touch $1,500 an ounce in the next twelve months.
