Gold prices hit a 27-year high Thursday as the U.S. dollar fell to historic lows against the euro and Canadian dollar.
The two are related. A weaker dollar has made assets such as gold and oil more costly and raised concerns that inflation could reignite.
“If you look at commodity prices, everything is at or near record highs,” said James Turk, chairman of GoldMoney, an online gold-investment site. “There is some serious inflation in the pipeline.”
At least that is what gold prices seem to be forecasting. Spot gold closed at $733.26 an ounce Thursday and is up $25.66 this week alone.
Spot gold is up about 12.5 percent since mid-August, when a global credit crunch shook markets.
Higher gold prices are boosting producers such as Denver- based Newmont Mining, which has seen its shares rise about 20 percent since mid-August.
Newmont had the foresight or luck to unhedge its gold positions earlier this summer, boosting its ability to profit from the run-up in gold.
“We have got a renewed focus on our core gold business,” said Newmont spokesman Omar Jabara.
The rise in gold conflicts with two reports this week that showed consumer and wholesale prices declined in August. And it doesn’t support worries that the global economy is about to slip into a recession, which would reduce demand and push gold and commodity prices lower.
“Gold is going to move up as the dollar moves down,” said Chuck Butler, president of EverBank World Markets in St. Louis.
Short-term interest-rate cuts Tuesday by the Federal Reserve acknowledged an increased risk of a recession while offering foreign investors a lower return, Butler said.
A sell-off by those investors, who held 44 percent of outstanding U.S. Treasury notes last year, could in a perverse way drive up long-term interest rates, making mortgages more expensive and worsening the housing slump.
Reduced demand for the greenback had the euro hit its highest levels against the U.S. dollar since its debut in 1999. The U.S. and Canadian dollars briefly traded one-for-one, something that hadn’t happened in 31 years.
Reports also circulated Thursday that the Saudi government could uncouple its currency from the U.S. dollar, a move that could carry big implications for oil prices.
Erik Davidson, senior director of investments for Wells Fargo Private Bank’s Mountain Region, said there are several ways investors can hedge against a falling dollar.
Investors should consider increasing how much they allocate to non-U.S. assets, including stocks, real estate and currencies.
EverBank provides certificates of deposits held in other currencies, as well as accounts holding shares in gold or silver directly, Butler said.
Exchange-traded funds or direct-purchase programs such as those offered at make it easier for small investors to hold gold bullion directly.
Those wanting to hold gold for a short period should lean toward an ETF, while those looking to hold for longer periods should own the metal, Butler said.
Advisers recommend passing on gold coins. Although heavily promoted, gold coins typically come with huge spreads between the bid and ask prices and aren’t as liquid as bullion.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
