Gold Prices Rally As the Dollar Sinks

Steven Bobson, Europe & Americas Editor
September 28, 2012 /

Gold prices rallied Thursday and the dollar fell after Spain released its 2013 budget and the U.S. reported pending-home sales weakened in August.

Spot gold jumped $24.06 an ounce to $1,775.65. SPDR Gold Shares ( GLD ), representing a 10th of an ounce minus expenses, gapped up 2.39, or 1%, to 172.2.

Gold bullion reached a nominal high of $850 an ounce in 1980, which would translate to $2,500 in today’s dollars. Tom McClellan, editor of the McClellan Market Report, believes gold will reach $2,900 an ounce if the Federal Reserve’s current quantitative easing program leads to inflation levels seen after the Civil War, when the country printed money to finance that war and post-war reconstruction.

Economic stimulus programs from the European Central Bank and the Bank of Japan, on top of the Fed’s, prompted Kenneth Heck to recommend GLD as his top ETF buy for the fourth quarter.

“Other central banks may follow as growth slows in their countries,” said Heck, chief financial officer of Heck Capital Advisors in Rhinelander, Wis.,with $375 million in assets. “Foreign central banks and investors may look to diversify away from the dollar, euro and yen and look for an alternative currency.”

In addition, seasonal demand for gold jewelry picks up in the fourth quarter and first quarter. “There is continued demand for gold from jewelry and as an inflation hedge, but we believe the largest demand in the short term will continue to come as a currency hedge,” Heck added.

PowerShares DB U.S. Dollar Index Bullish ( UUP ), a measure of the greenback against a batch of foreign currencies, fell 0.3% to 21.82.

Market Vectors Gold Miners ETF ( GDX ), a basket of 31 global gold miners, rose 2% to 53.37. GDX rallied 15.5% the past three months and 1.44% year to date vs. 12.22% and 14.25% for the MSCI World Index, according to Morningstar.

“The gold miners look like a great leveraged gold play, benefiting as they do from a weak dollar,” said Rick Vollaro, chief investment strategist at Pinnacle Advisory Group in Columbia, Md. with $1.2 billion in assets.

Silver Prices

Spot silver rose 67 cents an ounce to $34.60.

IShares Silver Trust ( SLV ) jumped 2% to 33.59.

Global X Silver Miners ETF ( SIL ) leapt 3% to 24.78.

 

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