Gold surges while most commodities end up flat or down
Precious metals were the surprise winners in the financial markets Friday.
Gold futures in New York rose $37.50, or 5.3%, to $742.40 an ounce, their biggest one-day gain since mid-September. Silver and platinum also surged.
What’s odd is that most other commodities were flat or down Friday, including oil. And the dollar was off just modestly against other major currencies; often, gold gets a big lift only when the greenback is sinking.
Some analysts say the rally had the scent of “short covering” by traders who had bet, correctly, that gold would drop in recent weeks with the general meltdown in commodities.
On Thursday, gold futures closed at $704.90 an ounce, their lowest price since September 2007 and down from above $900 in early October.
Jon Nadler, a veteran metals analyst at Kitco Inc. in Montreal, said there also were rumors Friday that a hedge fund had put in a “sizable” order for gold.
What’s more, the metal could be getting a boost from fears that this weekend’s international economic summit will disappoint investors hoping for a concerted effort to halt the global economy’s slide.
Still, Nadler thinks gold could fall to between $620 and $660 an ounce as the economy worsens, inflation fears continue to ebb and demand for raw materials continues to wane.
Analysts at Deutsche Bank in London said Friday that with the dollar at its current level, a fair price for gold would be about $600.
Bill O’Neill, a partner at commodities trading firm Logic Advisors in Upper Saddle River, N.J., said the major obstacle to a sustained rally in gold was that many hedge funds continued to dump commodity investments to meet redemption demands from panicked clients, or just to raise cash for safety’s sake.
Such selling is overwhelming what appears to be strong demand for actual gold from India and elsewhere, he said.
One question that looms: If more investors begin to fear a global recession so deep that it triggers widespread deflation, how would gold fare?
An argument for buying gold in a deflationary world is that it might still be a relative haven, if investors flee most other investments.
Although gold probably would fall in a general deflation, the decline may be “less than your average condo or retail stock,” Nadler said.
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