Gold Jumps to Record High! Now What?

By John Fisher

Gold hit a record high in the New York Spot Market today in what has been described as gold’s “longest rally since… 1948” (10/06/09, Bloomberg, “Gold Jumps to Record as Inflation Outlook Fuels Investor Demand”). The dollar is continuing to suffer from inflationary concerns as well as market “rumors” regarding possible challenges to the dollar as the world’s reserve currency.

One British newspaper reports “Gulf Arabs are planning- along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency….” The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.”(10/06/09, The Independent “The Demise of the Dollar”).

According to the chief investment officer of a California investment management firm, “Gold has just begun its ascent…As central banks print more and more money, the private demand for gold as an investment and inflation hedge is destined to grow. It’s pretty clear that gold will be at $2,000 by 2012, and it could happen a lot faster.” (10/06/09, Bloomberg, “Gold Jumps to Record as Inflation Outlook Fuels Investor Demand”)*

As of 9:00 a.m. PDT, gold was trading at $1,041.70 on the New York Spot Market, up $23.50. Silver traded up $.70 at $17.36. Platinum traded at $1,323.00 up $19.00. You can see the most current spot prices on our “Resource”s page. Here are the charts shortly after 4pm in NY:

Now for the 10-year charts. Note the importance of the 10-year gold chart. It has just pierced prior resistance. It is highly probable that we will see gold in excess of $1,100 this year – possibly $1,250 and a double by 2012.

Expect silver to “catch up” with gold. Silver is significantly undervalued – both in real terms as well as in relation to gold. Make sure you take a position in silver.

Also: at JSMineset.com, Dan Norcini has posted a remarkable chart of the Dow/gold ratio. [And it is worth seeing! Click here.] It’s not easy to comprehend that the pendulum has swung back so far.”

We will eventually see a Dow/gold ratio of 5, then 2, and possibly even 1-to-1, Dow to gold. Will the Dow decline or gold go up? It’s probably a combination with the Dow reaching 5,000 or less, and gold reaching $3,000 or more.