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Devember 22, 2008Gold Finished up 2.1%: Gold Finished up 2.1% Last week, though gold fell on Friday. The dollar has declined sharply, giving gold most of its recent gains. Silver and platinum were up even more strongly, on a percentage basis, up over 5% for the week. This came in the face of declining oil prices, down $2.35 a barrel on Friday to reach a four-year low of $33.87 a barrel on the New York Mercantile Exchange, down a shocking 77% from oil's peak at $147 last July. Gold is actually trading above where it was a year ago (then at $810 per ounce): You can't say that about any other asset class. Gold 52 weeks ago (December 21, 2007): $810.50 Gold's low for 2008: $692.50 on October 24 Gold's average price for 2008 so far: $872.15 Gold's high for 2008: $1023.50 on March 17 The Dollar Traded at $1.45 per Euro last week, down sharply from $1.25 to $1.28 per euro for most of November. (If you reverse those numbers, it means that the dollar is now worth about 70 euro cents, vs. 80 cents recently, a 12.5% decline in just three weeks.) This is partly due to the orgy of financial bailouts in the U.S., but the main cause is the Fed's decision to lower interest rates to virtually zero last week, at the same time the European Central Bank (ECB) has decided to stop cutting rates. This makes the dollar less attractive vs. the euro, so traders have abandoned the dollar in favor of the euro over the last few weeks, boosting gold's price in dollar terms. Silver and Platinum Rose over 5% Last Week and another 1% today. On the futures market, March silver is up to near $11 and platinum is near $860. The other battered metals are also up: March copper posted a 2.4% gain to $1.36 a pound, but that is down from a peak of $4 a pound. Gold remains the only commodity anywhere near positive ground for 2008 as a whole. Today's price would keep gold's record of rising years intact for the bull market that began in 2001... After gold's escalating series of increases the last three years - +18%, +23% and +32% - this year's correction is to be expected, but in the context of a global market meltdown, a 1% gain in gold this year would look more impressive than a 20% gain when the stock markets were rising. By contrast, the U.S. stock market fell in four of those years (2000-02 and 2008). Stocks are now below where they were a decade ago. In fact, the decade 2000-09 will likely be the first declining decade for stocks since the 1930s, unless stocks stage a historic rally (+70%) next year. Stocks vs. Gold Dec. 31, 1999 Dec. 22, 2008 9-Year change S&P 500 index 1469.25 873.04 -40.6% Gold $290. 845.00 +191% What's Ahead for 2009: Right now, the Federal Reserve is clearly fighting deflation, without a thought toward fighting future inflation. But with all the super-bailouts in recent months (and the near future), the Fed and the Treasury are doing what Ben Bernanke once promised - dropping $100 bills out of helicopters (or is it 747 jumbo jets by now?) This will not result in immediate price rises, but it will likely cause inflation in 2009, unless those loans are paid back promptly (fat chance). Otherwise, the $2 trillion added to the money supply since September will fuel inflation. A Volatile Combination: Put easy money together with hard credit and you get the current wave of deflation combined with a ticking time bomb of inflation once the economy starts growing again. This points to a risk of super-high inflation next year or in 2010, causing another huge decline in the value of the U.S. dollar, and a corresponding rise in gold prices, in dollar terms. Important Disclosure Notification:
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