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Gold Hits $1,000 Per Ounce for First Time Since Feb.

Gold has topped $1,000 per ounce for the first time since February, breaking through a psychological barrier that typically implies a weak dollar and investors who fear inflation.

Specifically, the price of gold is a futures price and right now, gold for December delivery is the most active in trading.

The last time gold topped $1,000 was Feb. 20, as the markets were spiraling toward their early March bottom.

There are a few reasons for the gold spike, which, by the way, is usually not sustainable. After recent trips above $1,000 per ounce, gold has settled back in the $900s.

First, there is a seasonal spike. Demand for gold has risen in past autumns and winters.

Also, gold typically goes up as the value of the dollar goes down against other currencies. The dollar is at a new yearly low against the euro.

Then, there's some psychology at work. If there's a feeling that gold is going to continue to rise, say, to $1,100 or $1,200 per ounce, investors rush into buy in the upper $900s, which naturally pushes the price higher as demand rises.

Finally, there is the fear of inflation. The Fed has flooded the system with new dollars over the past year, afraid that tight money would turn a recession into a depression, as it did in the '30s. But more dollars in circulation means each one is worth less, which can spur inflation. The Fed is not afraid of inflation, but others are not so sure. Some of them buy gold.

"Gold is celebrating because the day when inflation might return is getting sooner rather than later," Ashok Shah, chief investment officer at London and Capital, told Reuters.

-- Frank Ahrens
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By Frank Ahrens  |  September 8, 2009; 10:31 AM ET
Categories:  The Ticker  | Tags: Federal Reserve, gold, inflation  
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Next: September 6, 2009

Comments

the Fed's afraid of deflation but it's happening. the dollar will get stronger as debt destruction continues. maybe in a decade we'll have the inflation aftershock, but not now.

Posted by: millionea7 | September 8, 2009 1:46 PM | Report abuse

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