Gold: All That Glitters is Stolen?

by Paul Springer

An ongoing series of debacles has sent gold prices to the moon, leading to concerns for not only investors but also jewelry owners who are now more likely to get robbed.

Bloomberg reports that surging gold prices are producing all sorts of theories about the commodity’s future. One is just plain bullish:

Gold’s rally to a record near $1,900 an ounce has pushed the metal to overbought levels, according to a number of technical analysis tools. Economist Dennis Gartman was quoted Monday saying prices will go “parabolic.”

At the same time, many are wondering if gold is riding for a fall. Reuters talked to some skeptics after gold retreated from the $1,900 per ounce level Monday. “People talk about gold as an insurance premium, but right now it’s a really high insurance premium to pay,” LGT Capital Management analyst Bayram Dincer said.

Seeking Alpha posits five different situations that could lead to a gold drop – one of which is the good news scenario of economic growth. While that doesn’t seem likely in the short term, changing U.S. currency policies could have an impact:

The gold rally began back in January 2002, which was simultaneous with U.S. policy makers adopting a weak dollar policy. And the rapid acceleration in the gold price since the financial crisis has been supported by the further depreciation of the dollar coupled with competitive currency devaluations worldwide. But it was not that long ago that Gold was mired in a two decade long bear market, which coincided with a period of U.S. dollar strength. Thus, if U.S. policy makers decided to truly shift their stance toward promoting a stronger dollar at some point in the future, this would be bearish for gold and could mark the end of the current bull market.

ETFs have amassed huge physical and futures holdings in gold, and gold prices could suffer if investors liquidate ETF holdings, The Financial Times says.

Jon Bergtheil, an analyst at Citigroup cautioned that gold prices might suffer if ETF investors cashed in their holdings to finance losses in equity markets.

Mr Bergtheil said ETF flows were an important barometer of investment demand, which has risen from 4 per cent of total demand in 2000 to over 39 per cent in 2010.

Meanwhile, the publicity surrounding the glittering metal’s rise in values has encouraged another means of getting ahold of the substance: stealing.

Gold grabbing is getting out of control, The L.A. Times says:

That stunning rise in the price of gold is having a ripple effect: A rash of jewelry store robberies, street muggings and home burglaries. Now, merchants are stepping up security and police are warning everyone against flaunting their bling.

It’s also a problem in the U.K., according to The Express & Star:

The crime wave leaves no trace and the increase in the number of independent gold dealers, many of whom do not ask for ID, means police are struggling to tackle the problem.

It remains to be seen whether the craze for gold pilfering corresponds with a slow down in bank robberies. That might well be the case in the U.S., especially if the Fed decides to print up another boatload of cash and dispense it in a new corporate welfare program.

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