Capital Gold Group Report: Gold Surpasses $1,200 on Global Economic Uncertainty

By J. Ryman on May 26, 2010 10:12 AM | Permalink

NEW YORK (The Street) -- Gold prices were rising Wednesday as jittery investors continued to buy gold as a safe haven asset to battle global economic uncertainty.

Gold delivery for June was rising $12.50 to $1,210.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price today has traded as high as $1,215 and as low as $1,201. The U.S. Dollar Index was rising 0.58% to $86.85 while the euro was falling 0.78% to $1.22 against the dollar after hitting a new eight-year low on Tuesday. The spot gold price Wednesday was adding over $9, according to Kitco's gold index.

Gold prices managed to break and hold the $1,200 area after the metal held up during Tuesday's options expiration. Typically, investors are forced to sell or cover some short positions on options expiration, which leads to more downside and volatility in gold prices. However, gold prices settled at $1,198 after briefly touching $1,200 on strong investor demand, which set the stage for the next leg higher for prices.

Now the question for investors is if this gold rally is déjà vu or if the metal will be able to break its old high of $1,249 an ounce. The U.S. dollar is curbing some of its recent gains which is helping support higher gold prices in the short term. Profit taking could keep gold prices volatile as investors might need to sell gold to raise cash to cover losses in the short-term.

Although markets seem calm, analysts expect investors to continue to hedge their riskier investments with the safety of gold over the long term. There was no eurozone drama overnight, and many experts seem reassured that China will continue expanding despite previous efforts to curb spending. Federal Reserve Chairman Ben Bernanke also said at a seminar hosted by Bank of Japan that U.S. inflation expectations are "very stable."

South and North Korean governments pledged to hold conversations to reduce tensions in the region, but political unrest and global financial uncertainty are expected to increase gold's appeal as a safe haven asset and as a form of money that retains value.

The World Gold Council released its first-quarter Gold Demand Trends report in which it expects gold demand to stay strong during 2010. According to the report, gold prices will be led higher by increasing investment demand and improving jewelry demand from China and India. Price-sensitive Asian countries, especially India, had previously shied away from gold as prices rose. Total identifiable gold demand was down 25% in the first quarter, but consumer demand in India surged 698% to 193.5 tons while demand rose 11% in China.

Aram Shishmanian, CEO of the World Gold Council says, "with the global economic recovery still burdened by high and rising debt levels in Western economies, as well as the renewed threat of recession driving down the US dollar and equities, the outlook for gold as a liquid, reliable asset class and as a store of wealth remains highly favorable.

Silver prices were rising 49 cents to $18.28 while copper was adding 4 cents to $3.09. The industrial metals had been beaten down on fears that China will curb its growth too much, and decreased spending in Europe would wreck demand for silver and copper. These fears have abated somewhat, especially after a Citigroup metals analyst said metal stocks offer good value as the recent selloff presented good buying opportunities.