Wednesday, April 19, 2006


Silver, Gold Continue Rally

Bloomberg reports on high flying precious metals. "Gold rose to a 25-year high and silver topped $14 an ounce for the first time since 1983 as investors snapped up precious metals to hedge against inflation. Gold futures for June delivery climbed $12.70, or 2 percent, to $636 on the Comex division of the New York Mercantile Exchange, after earlier reaching $637.40. Gold for immediate delivery rose $17.43, or 2.8 percent, to $638.50 at 7:36 p.m. in London, gaining for the fourth straight session."

"The rally in consumer prices last month, tame compared with the gains of more than 12 percent in 1979 and 1980, will spur gold higher, analysts said. 'It was only a matter of time until rising costs reached a point where they were going to be passed along' to consumers, said Michael Alfstad. 'That will add to the building interest in gold. $600 will not be the last threshold that is exceeded before this year is done.'"

"Jim Rogers, the former George Soros partner who foresaw the start of a commodity rally in 1999, said gold may reach $1,000, surpassing an all-time high of $873 reached in 1980."

"Higher costs for energy fueled this year's rally in precious metals just like it did in 1980, analysts said. Oil prices more than doubled in 1979 after a revolution in Iran slashed the nation's oil exports. By 1981 U.S. refiners were paying an average $35.24 a barrel, or $78.50 in 2006 dollars, Energy Department figures showed."

"Silver for May delivery rose 77 cents, or 5.6 percent, to $14.555 an ounce on the Comex, after reaching $14.575, the highest since February 1983. Silver's gain was the biggest fluctuation of any commodity today."

"'The bull market in gold is young, but silver looks to be in a blow-off phase,' said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York. 'The top could coincide with the ETF introduction.' Gold and silver are both vulnerable to short-term declines, analysts said. The relative strength index for both metals rose above 70 today. Readings above 70 indicate prices may be poised to fall."

"'The commodities keep on rolling on the upside that you have enough hedge funds out there that believe in the rally,' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. 'This is an overreaction, and you're susceptible to a decent- sized correction.'"

Using the inflation calculator located in this blogs sidebar, one finds that a $14.57 ounce of silver bought should cost $29.62 if it was a typical good or service. An ounce of gold purchased in 1980, as this article notes, was around $873. Using the calculator, that amount is $2,145 in todays' dollars.

Doing those inflation calculations brings a two-sided reminder. One, that precious metals have not keep up with inflation for over two decades. The other is just how far the prices could go just to match previous tops. Interesting times!
Really nice to see the inflation calculator. The mainstream still keeps reporting Au&Ag at all time highs,"not seen since the 80's" ETC... I love it when I hear the FED say that"core" inflation is tame/under control. When the metals are screaming just the opposite! Gotta wonder who their comedy writers are.

Those numbers really surprised me. $2000 gold!?

Don't forget the blogger outage at 4PM PST.
Ben, we'll hit $2K before the public jumps in. You simply can't underestimate the forces at work here.
$590 to $637 in a week? Wow.

All my friends, coworkers, and family still believe I'm insane for investing in gold, so I think we're a long way from going "mainstream".
tell them in gold terms the DJIA has declined by 50%.
I believe our government. Core inflation has really not increased.
It still costs the same for clouds,
rain, air that you breath and ocean water.
silver is taking a beating today.
Same with gold. Looks like a potential buying opportunity...
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