2011-SEP-02
The price of gold has started September on a strong footing. Spot gold is now trading at $1,850 per troy ounce, setting its sights on $1,900.September is traditionally a very strong month for gold thanks to Indian demand, driven by the upcoming festival season. This year promises to top all previous benchmarks, as investment demand for gold continues to grow and is spurred rather than deterred by high prices. In a King World News interview yesterday James Turk warned that we could easily see $2,000 within a month or two.
Silver, the other monetary metal, is also showing strength in the face of lower commodity prices. Despite an over 10% drop in crude oil prices in the past months, silver has held onto the $40 per ounce level and could soon resume its path to $50 an ounce. Spot silver is currently trading at $42.3 per ounce. With over 10,000 industrial applications, silver is second only to oil as a necessary commodity for industrial civilization, although arguably its monetary function is even more important than its industrial uses. A decoupling of silver prices from other commodities could signal a growing appreciation of its monetary properties, with very positive implications for its price.
Gold money and a possible return to the gold standard is starting to become a major issue in US politics, prompting former presidential candidate and magazine editor Steve Forbes to forecast that the dollar will again be backed by gold in as little as 5 years. Considering that one contender in the ongoing Republican primaries is a major proponent of the gold standard and another of the frontrunners has spoken favourably of it, the issue will certainly be discussed in the 2012 elections.
The major media has caught a whiff of this wind of change and we are seeing increasing coverage not only of gold, but also of gold as money. Reporting is still strongly biased against gold, but it is still a major shift from previous neglect. A prime example of this is this CNBC piece, which includes a poll on a return to a gold standard in which an overwhelming majority of participants (68%) voted in favour. The panel discussion shows us James Grant, of Grant’s Interest Rate Observer, beset by other commentators whose views of gold money are clearly very negative. The animation clip showing the “history” of the gold standard looks like an advertisement against it, including some gross misrepresentations of history. Thankfully, as the poll shows, viewers seem ever more immune to these attack pieces.
Markets are also waking up to the advantages of diversifying into hard assets, although as Adrian Ash points out here, there is still a large disparity between the 34% of investors that think that gold is a great safe haven and those that actually own it, with less than 1% of US household wealth net worth invested in gold.
