Would gold in the $2,000 price range slow its advances?
*Barron's, by Gene Epstein, October 11, 2010
”WHITHER THE GOLD PRICE? That all depends on another question: Whither the global economy? If ‘to hell in a handbasket’ is your answer, then go for the gold: A price of $2,000 an ounce or more, versus the current $1,345.90, looks quite plausible under those circumstances.
The Barron’s outlook, by contrast, might disappoint the most fervent bulls. Assuming that panic about the global economy will begin to subside to mere gut-level fear of the chronic sort, the bull market in gold that began in 2005 will slow its pace in the next few years. By 2015, the average annual price of gold could be $1,500 an ounce, albeit with plenty of fluctuations around that average.
Gold bulls, including gold-fund manager John Paulson, foresee much higher prices for the yellow metal. Their main argument is that there no longer is a haven among the major currencies. If the dollar is about to fall, that wouldn’t be a worry so long as it could be replaced by, say, the euro or the yen. Gold, then, is the only haven left.
Barron’s respects that argument but sees potential breaks in the price if it gets too high. At $2,000 an ounce, for example, jewelry could be sold for its gold content – selling that has already begun to happen and could accelerate greatly if the gold price climbs.
>From current levels, gold is probably best seen as an insurance policy against persistent uncertainty about the global economy. While there is no gold standard, so to speak, for the share of a portfolio that should be allocated to the metal, 10% might be prudent, as Barron’s Roundtable member Felix Zulauf of Zulauf Asset Management has suggested.”
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