10 June 2006

Gold: Bull Markets Climb Walls of Worry

Safe Haven | Gold: Bull Markets Climb Walls of Worry: "Conspiracy theories, self-doubt, testing 2,000 years of history? The Da Vinci Code? No. Gold. Gold bullion's performance continues to defy conventional wisdom. Gold broke $700 an ounce to its highest price in a quarter of a century before retreating in profit-taking. Nonetheless, gold has risen more than 250 percent in the past five years, outperforming stocks, bonds and cash. Gold's move is due to the fact that the US has become the world's largest debtor in history. Gold generally has an inverse price relationship to the US dollar. As global rates inch up, there has been a major realignment of interest rates making non-dollar assets more appealing. The renewed flight from the dollar has been fast and furious, losing 6 percent against the euro in only a month.
Wall of worry
Bull markets climb walls of worry. With gold pulling back almost 13 percent, conventional wisdom is skeptical about gold's rise and sustainability. Such uncertainty has caused many investors to shun gold. Commodities have recently touched new records, reaching levels not seen for nearly two decades. However, when adjusted for inflation, commodities in real terms are even cheaper with crude oil and gold less costly than they were in the 70s. While most analysts are calling for the 'pricking' of the commodity bubble, few have 'drilled down' for the real cause of the price moves.
Simply, we believe that a commodities super-cycle has just begun. Two decades of neglect and inventory rundown sparked the upturn. We are experiencing a fundamental imbalance between constrained supplies and exploding demand. South Africa, the world's largest gold producer produced almost 11 percent less gold in the first quarter despite higher prices and will produce less then 300 tons this year, an eighty year low. South African production ha"

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