With gold crossing the $900 an ounce mark this week, investors wonder whether the benchmark precious metal is nearing a top or poised for a run to higher ground, even the previously unthinkable $1,000 per ounce mark. Gold reached $915.90 on the New York Mercantile Exchange this week, an all-time high, and has since hovered around the $900 level the rest of the week. According to CNN Money, Citi Investment Research Gold Analyst John Hill added his voice to a growing feeling among analysts that the metal has a chance to top the $1,000 mark in 2008.
Gold has traditionally been a hedge against a weak dollar and a haven against other weak or poor performing assets, and has always been preferred to paper currencies by a certain small segment of the investment community. What may mark this possible changing paradigm in gold is how it is now being viewed. It is no longer, in analyst’s views, strictly a hedge instrument or a safe haven investment, but is instead seen as a dynamic, active growth vehicle. This has surfaced with the roiling of the broad US stock markets and the weak US dollar, given the historically low interest rate environment.
The one major caveat is that with industrial slowdown and potential recession, other precious metals such as aluminum and copper, which are heavily dependent on industrial use for their value to be realized, often make up a portion of mining stocks which also mine gold. Freeport-McMoRan Copper and Gold (FCX) is a prime example of this. The stock, unlike the metal on the NYMEX, is trading in the high 80s on the NYSE, down from its twelve-month high of 120. Also, the spectre of inflation or stagflation, though now regarded by analysts as minimal, can dampen the play on gold.
Many investors utilize the gold mining stocks such as FCX, Newmont Mining (NEM), or Barrick Gold (TSX:HCX) rather than buying gold directly, though commodities traders make a pure play on gold through the New York Mercantile Exchange.
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