Global Demand Drives February Gold Prices
Bullion Goes from Global Trade Commodity to Store-of-Value Currency
Feb 10, 2009
Typically gold prices move in opposite direction to the US dollar. Bullion also usually goes down with oil prices and inflation.
Yet gold prices in February 2009 at around US$900 are up 217% since 1999 despite a strengthening American greenback, falling oil prices and low inflation rates.
February Gold Prices Since 1999
From 1999 to 2008, bullion prices at mid-February were higher than the corresponding average annual gold prices for only 3 of those 10 years. Mid-February gold prices were higher than the annual average in 1999, 2000 and more recently in 2008.
- 2009 … US$910 per ounce on February 10, 2009
- 2008 … $919 (5.4% higher than $872 average price for 2008)
- 2007 … $665 (4.4% lower than $695 average price for 2007)
- 2006 … $555 (8% lower than $603 average price for 2006)
- 2005 … $418 (6% lower than $445 average price for 2005)
- 2004 … $397 (3.1% lower than $410 average price for 2004)
- 2003 … $348 (4.2% lower than $363 average price for 2003)
- 2002 … $297 (4.1% lower than $310 average price for 2002)
- 2001 … $261 (3.7% lower than $271 average price for 2001)
- 2000 … $312 (11.8% higher than the $279 for 2000)
- 1999 … $287 (2.9% higher than the $279 for 1999).
Most analysts project that current February gold prices will trend higher by the end of the year.
Gold Looks Attractive in Current Global Economy
Back in the 16th to late 18th centuries, gold and silver were key commodities that motivated colonial powers to maximize exports while restraining imports. A positive balance trade would bring more of these precious metals into the conquering nation, while maintaining domestic employment.
Merchants like the British East India Company increased the use of gold and silver as metallic currency to pay for exported products.
While the days of mercantilism are over, gold may well be king again.
Global Investors Look to Gold as Currency Again
Even though the US dollar is stronger than it was a year ago, investors around the world are nervous about the value of US currency after Barack Obama’s stimulus package that could ultimately exceed $1 trillion. The American government will have to print vast amounts of money to pay for needed infrastructure spending projects that will generate new jobs in construction, manufacturing and services. Printing more currency leads to a weakening US dollar.
In addition, other countries own as much as 50% of America's debt which has to repaid in US dollars. Again, the Federal Reserve Board will have to print more American currency. These international economies have introduced their own stimulus packages and infrastructure spending projects, which will dilute local currency values.
Reasons Why Gold Prices Will Go Up
Combined with volatile international markets, investors are looking to gold as a hedge against weakening currencies and high inflation.
Most economists expect oil prices to move up over 50% from current levels to at least $65. Gold has historically traced the cost of oil, mainly because oil is a major component of consumer price inflation.
Once spending on infrastructure projects works its way through global economic systems, more people will have good-paying jobs. Some will be in a position to buy gold as an alternative investment.
Golden International Trade Currency
During the Obama regime, Gold Exchange Traded Funds (ETFs) may well be a leading international trade investment. This is particularly true for people who want to invest in gold as a currency that will appreciate in value during the next 8 years.
Sources for this Article
This article presents independent calculations and insights based on gold prices posted at kitco.
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