Daily Commentary

Many Factors Support Gold

by Joe Battaglia
Posted: June 15, 2004 Gold rose over $3.00 in early trading, in reaction to the Consumer Price Index data. Consumer prices rose .6% - that is equal to a 7.2% rate of inflation on an annualized basis. Moreover, when added to the first 3 months of the year, it decisively confirms that inflation is in a significant rising trend. The dollar fell, but not as much as I would have expected. The dollar is down 33 basis points. The relative strength of the dollar is likely due to the fact that it is expected that the Fed will raise interest rates in order to combat rising inflationary pressures. However, they are stuck in a Catch 22 situation, where raising interest rates could be very negative for the economy and the markets, especially housing. Therefore, I suspect that the Fed may approach a relatively moderate stance on interest rates, while at the same time continuing to expand money supply very aggressively. In other words, I believe that the Fed has little choice other than to continue inflating. It was interesting that food prices rose .9%, scoring the highest levels in over 50 years. Energy prices rose at an annual rate of 55%. With such aggressive increases in inflation, investors should be flocking to gold. However, for the moment, as gold remains in a consolidation phase, it is more focused on the dollar and what the Fed may do at the end of the month. Gold is also supported by the increasing violence in the Middle East, and the fact that a pipeline was blown up, causing the loss of a substantial amount of oil for the foreseeable future. Oil is up 49 cents a barrel to $38.08 a barrel, suggesting high inflation will continue. John Reade of UBS Bank said, "We remain positive about the longer term prospects for gold . and continue to forecast $390 an ounce in one month, and $450 an ounce at the year end." I think that that is on the conservative end of the forecast for the year end, and should be achieved. If he is right, that means that investors who acquire gold today would see a gain of 17% between now and the end of the year. That's a pretty fantastic upside potential. To receive free information on the many factors that are likely to continue supporting gold, and for free information on how you can triple your interest income on money market funds and CDs with greater safety, call Goldline for the free information package. Be sure to ask for information about I-bonds. Goldline continues to offer a special on Swiss 20 Franc gold coins. Acquire 29 coins and the 30th is free. Call 1-877-341-2646.

 

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