Tuesday, June 1, 2010

Gold Held Up By Alternate-Currency Demand

Commentators are settling on the reason why gold keeps going up: the source of the added investment demand is the metal acting like an alternate currency. Sanlam Investment Management equity analyst Shoaib Vayej concurs with this explanation, according to an article in the Business Report. Although not agreeing that the gold standard is to be restored, he did say that it's "increasingly being viewed as a viable currency alternative."
A retrospective look at the gold price in real terms suggests that the price is still 40 percent below the peak it reached at the beginning of 1980.

So the gold price could continue to rise by another 67 percent before it surpasses its historical peak in real terms but when it reaches that peak, the reversal from those levels is likely to be quite swift and dramatic....
Vayej also pointed out that, if a comparison of the standard ratio of gold to cash costs in used, gold should be around $800. The difference, he intimates, is explained by that added source of demand.

He comes across as a tradition-bound analyst who's getting used to gold prices much higher than what traditional analysis says they should be. He's not a bear at this time, as he also said that gold has not gone into a manic phase that heralds the end of a long-term bull market.


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