Safe Haven Gold
by Joe Battaglia
Posted: December 22, 2004
Gold opened higher but has eased back slightly in very light dealings. The dollar is unchanged at 81.84, again in fairly light trading. Analysts are looking at the GDP numbers this morning. Capacity utilization has risen to 78.7% in November from 77.6%. Industrial production however was revised downward to .02% versus the previous estimate of .03% increase. This data seems to suggest the U.S. economy has considerable capacity to grow. However, whether that growth occurs is doubtful in my view. It would appear to me that the economy remains somewhat stagnant; while there is growth, it's not robust and a good part of that growth would appear to be inflation driven. Moreover, the chain-weighted price index was revised to a gain of 1.4% from the previous estimate of 1.3%, again, confirming inflation is an increasing problem. While 3rd quarter GDP was increased to 4% from the estimate of 3.9%, this is not enough to really signal a substantially growing economy. As a consequence, after the data came in the dollar tended to weaken a little bit and gold firmed. It suggests the Fed is not likely to make any drastic changes in its policy. Therefore, the dollar should continue on its declining trend.
Oil is up slightly to $45.80 a barrel and continues to be a driver of inflation. Investors should act promptly to acquire gold and silver assets at this time. I believe that during the 1st quarter of next year gold will rise to the $500 level and a number of analysts believe that gold will rise to the $550 or above level in the 2nd quarter of next year. This represents an outstanding upside potential. Moreover, James Moore said that gold's role, as a safe haven tool is likely to cause funds to remain long the market. When we look at the geo-political situation and see the terrible attack on U.S. troops yesterday we can see that the problems in the Middle East are not going away any time soon. This will point to higher budget deficits, which will further weaken the dollar and push gold higher. It also creates safe haven demand for gold.
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