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« Silverado Gold Mines: Time to Move On | Main | Randgold Resources Limited: A Few Call Options »

The Week of the Record Gold Price

Gold Chart 10 Oct 09.JPG

As investors in the gold market we have waited patiently for gold prices to break through the old record gold price of $1033.00/oz and set a new record gold price which it did when it briefly touched on $1060.00/oz this week. This record has been along time coming after the previous failed attempts this year to establish a new record gold price.

For the most part the gold producing stocks also took part in this rally as evidenced by the Gold Bugs Index, the HUI, which is currently sitting at 446. The HUI is important to us because it largely represents those precious metals producers that have not hedged their production and therefore offer an investor real exposure to gold prices.

As the inflation/deflation debate continues with much gusto we still lean strongly towards the inflationary scenario based on each and almost every governments action to run the printing presses relentlessly. In our humble opinion gold is a leading indicator for inflation and is telling us that inflation is now in the pipeline and it wont be too long before it raises its ugly head. Why else would Paul Volker have been added to Obama's team of advisors, wasn't he the very man who in the late seventies and early eighties was brought in to slay the inflation dragon which he did with a base rate of around 19% if my memory serves me well.

Another action worthy of note is that The Reserve Bank of Australia have actually raised interest rates this week, the first of the G20 to do so. This is one country that has an eye on inflation, acting early in an attempt to prevent it getting a grip of their economy. This move will influence others thinking and those with the stronger economies may well follow suit shortly. The countries with weaker economies will no doubt remain as is not daring to risk a fragile recovery at this stage by raising rates. For home owners now might be the time to lock in mortgage rates before they also head to higher ground, worth a discussion with your financial advisor.

Taking a quick look at the chart we can see that gold prices really took off to set a new record gold price with the MACD experiencing a golden crossover, a rising STO and the RSI breaking into the '70' range. A move this far and this fast usually signals that its time for a breather and a bit of a pull back for gold.

The flip side to that rationale is that the dollar, along with many other currencies, is struggling to retain its value. We can only see paper money losing more and more of its value as debasement continues at a hectic pace, hence the next two months will be explosive for gold as it sets one record gold price after another record gold price.

Finally, a reminder that when we throw in the effects of inflation, gold should be trading at around $2300/oz to equal its historic high of the 1980s, so there is still a lot of ground to make up.

Have a good one.

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Reader Comments (8)

Nobody should doubt the legitimacy of gold's historical value; but more importantly, when you have to buy groceries with something of value (in time to come) nothing will be more readily recognized.

October 11, 2009 | Unregistered CommenterRalph

On the contrary side, just about every serious technician, including those pro-gold, are expecting this to be a double top with a BIG downside correction, soon. Will it be from here, or 1200 or so? Who knows. Personally, I am very nervous since the xau at 175 represents a massive nonconfirmation of the new gold high....but, we shall see! Your relentless optimism is an interesting counterpoint to many other newsletters/services!!

October 11, 2009 | Unregistered CommenterS

Gold is only at an "all-time high" from a nominal perspective and that means nothing. Surely you know this, right?

We would have to be over $2,2002 today just to equal the 1980 all time high of $850. or so.

October 12, 2009 | Unregistered CommenterM

Hi bob,

I,ve been told by some jewellers that gold is going to reach 1250 ? soon... do you think i should sell or wait.


October 12, 2009 | Unregistered CommenterG


Many moons ago when gold had broken through the $600/oz level we wrote an article entitled something along the lines of 'You will never see $600/oz Again', and of course the brick bats came in. The truth is that nobody knows for sure and ours is just another opinion to add to the pot, come New Years Eve we will know one way or another.

October 12, 2009 | Unregistered CommenterGold Prices

I know a lot of people use the Chinese market prediction concept - and do it well. I've been to a seminar where the whole concept was explained, and it made sense. What concerns me, is that (in my opinion) pretty much all the previous 'tea leaf reading' capabilities that we've developed over the past few centuries might be out the window in the present case. So many of our concepts for predicting are predicated on some semblance of continuity, which I think is devoid at this moment in capitalism. Investments have been interwoven in a blender to a degree that the souring of any sweeps wide and fast. When push comes to shove - and it will - things will be worth exactly what they are... and I can buy paper for about $5 a ream. I perceive many investments, coined in paper, will be worth no more than that which they're printed on. As a civilization, we've seen it before... we'll see it again.

October 14, 2009 | Unregistered CommenterRalph

PS - I'm not saying indicators aren't important. I just don't think they have the veracity they once had - not in the medium run.

October 14, 2009 | Unregistered CommenterRalph

I think it's curious that the price of gold is moving in unison with the stock market. I would think it would be an inverse relationship.

October 29, 2009 | Unregistered Commenterfile bankruptcy yourself

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