"People have lost faith in paper money" as the Fed debases the dollar. Gold at $1,387 over 2 record days
After settling above a record $1,370 an ounce Wednesday, gold continued its blistering run Thursday by piercing the $1,380 level, going as high as $1,387. What do the experts say is driving gold?
“Gold is an international currency phenomenon. Around the world, people are turning disdainful of their own currencies and everyone else’s. So, where do they turn? They turn to the gold market.” – Dennis Gartman, hedge-fund manager and Gartman Letter publisher.
“If there is further dollar weakness surrounding quantitative easing ... it is almost certainly going to be highly supportive for gold.” – RBS Global Banking & Markets analyst Daniel Major.
“With the weaker dollar, inflation will pick up in the commodity space, which is the most sensitive to monetary stimulus. So, it’s only logical that gold will do very well in that environment.” – Axel Merk, who manages $500 million in mutual-fund assets.
“Although [quantitative easing] expectations are an important element of the rally, currency disputes are also a prime driver of gold prices. The recent [International Monetary Fund] meeting saw the public airing of sharp disagreements between China and the United States on currency policy.” – HSBC’s Jim Steel.
“Because we are in a world of quantitative easing in the developed economies, and as QE is almost synonymous with competitive devaluation ... gold and the precious metals (are) taking on the function of an alternative currency. As we go into the next one to four quarters, the role of precious metals as alternative currency will become much more paramount. The role of gold as an inflation hedge is not important now, but it may become important in the next cycle when the time to reverse quantitative easing comes.” – Ashok Shah, chief investment officer at London and Capital.
Despite record highs, gold can be expected to rise even higher, says Guggenheim Partners' Scott Minerd in an Oct. 12 interview with WallStreetJournal.com.
"People have lost faith in paper money, and the monetary substitute - the old maid of monetary substitutes - is gold," Minerd says.
"Personally I think that gold will probably approach $5,000 and possibly go higher. It depends on how deep and severe the crisis is."
Responding to an interviewer's skepticism, he says: "Nobody believed that we were going to have ... a crisis of biblical proportions in the crash of housing. It makes me comfortable that a professional like you doesn't agree with me on $5,000 gold."
Minerd also cites dwindling mining output in building his case: "The supply-demand imbalance still favors that there's a shortage of gold relative to the demand for it, and so it obviously is going to push things higher."
As for the Federal Reserve's money-printing policies, he says: "Look at quantitative easing. Gold two or three years ago was around $800 an ounce. The total size of the Fed's balance sheet was $850 billion. Today the Fed's balance sheet is about $2.25 trillion. We're talking about another trillion or two. If you look at the ratio of just the money in circulation relative to gold, it would argue that gold prices should be currently somewhere in the neighborhood of $2,000, if you were just keeping pace with the Fed's balance sheet. And with quantitative easing, the question becomes: How far is up?"