GFMS Looks for Gold to Surge in Second Half of 2009

While gold could average around $915 an ounce in the first part of 2009, it's in the second half that it could really soar, according to consultancy GFMS in its Gold Survey 2008 report. They project gold could reach as high as $1,080 an ounce as the U.S. dollar inevitably weakens. (Why the U.S. dollar will plunge in 2009.)

The average price of gold in 2008 was just under $872. Today gold was trading over $816 at 4:30 EST.

For the year, GFMS is looking for a trading range for gold of $750 an ounce to $1,080an ounce.

There's no doubt gold will rebound, as the bubble will burst sometime in the year for U.S Treasury bonds, which are wrongly being touted as havens of safety. Click on the link above to find out why that's so.

Because we don't have any idea how much more forced liquidation is out in the market, it's the one variable that could allow the U.S. dollar to remain temporarily strong, as companies continue to sell assets to cover their losses and raise cash.

Even though demand for gold in jewelry fell by almost 11 percent last year, that shouldn't have any impact on the price of gold, as safety and inflation protection will be the driving forces pushing the yellow metal up.

With the Federal Reserve going to be forced to print more money to cover the misguided bailout-mania and acquisition of Treasury bonds, that will also eventually push the strength of the U.S. dollar down and drive people toward gold. It's only a matter of when, not if.

Gold Futures Close Friday at $791.80 - Highest Level in Over a Month

Gold futures went over the $800 an ounce mark for the first time since October 16, closing the session at $791.80 an ounce on the Comex division of the NYMEX. It went as high as $801.90 before settling to the closing numbers.

For the week, gold futures were up by 6.7 percent, the best performance since the week ending September 19. In dollars that was a $43.10 increase.

Investors are starting to ask themselves if this is the beginning of gold performing in its usual role as a haven of safety. The ongoing plunge in oil prices, decoupling from the movement of gold for the first time in a long time, may also signal a return to normal activity for the yellow metal.

Forced liquidation has been a major factor in holding the metal back from its usual upward movement in times like these.

Other factors have been prices falling and a stronger U.S. dollar, which has also put downward pressure on gold.

But the U.S. dollar strength is partly the result of some governments selling gold to prop up the dollar, as well as the forced liquidation coming from funds needing access to cash.

It doesn't seem that even with the beginning of the decoupling of gold from oil, that it means the forced liquidation period is over. I don't think we've reached that point yet. It is possible it may be the beginning of the end though, and that would definitely be a positive signal for gold investors.

An Ounce of Gold Buys Most Barrels of Oil Since January 2007

While gold has partaken in the fall of commodities, it has held better than most during the worldwide credit crisis. Even so, it has dropped by 16 percent since October when large funds started to deleverage their positions.

One of the measures used to measure the purchasing power of gold is how many barrels of oil it can buy. As of Friday, it bought 12 barrels of oil per ounce of gold, the strongest performance since January 2007.

When oil reached close to $150 a barrel in July, the ratio of gold-to-oil dropped to 6.6. Over the long haul the average ratio comes in at close to 15.

The normal historic behavior of gold in relationship to oil is rise in price along with it, usually performing as an inflation hedge.

With consumer demand falling and companies cutting back on purchases, gold has also risen against metals like copper and nickel. The gold-to-nickel ratio is another indicator used to measure economic performance, and last month Deutsche Bank asserted it could fall into single digits if economic conditions continue to worsen.

As tight credit markets ease, we should see gold return to its usual use as an inflation hedge and flight to safety. So far inflation has been somewhat contained, but the inevitable printing of more money to fund all the billions in bailouts will put upward pressure on prices of goods and services.

In the short term safety will be the key issue driving gold prices as more liguidity enters the markets. Liquidity is the key driver now, not safety.

So far this year gold has fallen by 12 percent, while crude oil has plunged 36 percent.

Gold Down to Lowest Level in 21 Months

The sell-off of gold continues, as institutional investors scramble to cover the loans being called for bad investments.

Today's prices fell to a 21-month low, and may end the day at its lowest historical weekly performance.

With the gold and general commodity sell-off, the normal market reaction to poor economic times isn't being played out, as various institutional funds look everywhere for cash. It has also uniquely strengthened the U.S. dollar because of commodities being denominated in it.

Gold today dropped as low as $681 an ounce early in the session on the New York Mercantile Exchange, although rebounding later to $708.70. That's the lowest gold has been since January 11, 2007.

There's nothing gold investors can do but wait for the unwinding of the positions held by large institutions before things will revert back to normal measurements.

The problem is some of the financial instruments are so complex that we have no idea of the timeframe involved before the positions are covered.

Gold Drops Below $700 for First Time in 13 Months

Downward pressure on gold continues as gold futures today fell as low as $695.20 an ounce before closing the session at $714.70 an ounce. After hours it was up over $723 an ounce as of about 6:30 EST.

Forced liquidation by funds continues to be the story with gold prices, along with the strength of the U.S. dollar.

December delivery for gold dropped by 2.9 percent or $20.50 to close at $714.20 an ounce on the Comex.