Source:Myra Saefong, Marketwatch
San Francisco— For the tough gold traders who've stuck it out, it's been there, done that and earned that, lost that — many times over, all year long. What to do next is the question.
Gold futures climbed to a 26-year high above $700 an ounce back in May and haven't traded anywhere near that level since.
When gold traded near $728 in May, "there was a lot of excitement," prompting scenarios of $1,000 gold prices — even $2,000 and higher, said Steven Jon Kaplan, a senior editor at TrueContrarian.com.
"Since then, a worldwide economic slowdown has begun [and] the anticipated increase in demand for commodities has therefore been reduced," he said.
Now prices are beginning to show some signs of life again as uncertainty surrounds nuclear activities in North Korea and Iran, and the U.S. accuses Syria of planning to topple the Lebanese government. The U.S. dollar is also losing value and experts bet on further weakness in the currency. Some analysts say the slowdown in economic growth has spurred buying in gold as an alternative investment.
With a backdrop like that, it's hard for gold analysts to give up their predictions for $1,000 gold — and they haven't, though they admit that the level may be a bit further off — at least a year later than some had originally predicted.
"We would not be surprised to see $1,000-plus gold from sometime in 2007 at the earliest to 2009 at the latest," said Julian Phillips, an analyst at GoldForecaster.com.
In the short term, gold is "looking to rise because physical demand is now being added to by the turnaround in hedge funds' change of heart to the upside," he said.
"The potential oil shortage and subsequent pressures of who gets what oil [and] the now more-than-likely ruptures in the stability of the global-money system when the dollar starts to suppurate" support a medium- and long-term bull market for gold too, he said.
Such crises begin to raise doubts in paper currencies. The fear of the future will create such uncertainty that investors will be spurred to hold gold 'just in case', Phillips said.
Dollar crisis
Key to the gold's rise is the dollar's demise, especially in an election year.
"The hot money that flowed into gold earlier in the year is all but gone and gold's ups and downs have basically returned to traditional matters," said Peter Grandich, editor of the Grandich Letter.
"A declining U.S. dollar is likely to grab center stage in gold's trek to new highs in 2007," he said.
And the dollar is "more vulnerable than ever," said Ned Schmidt, editor of the Value View Gold Report, asserting his belief that the "dollar bear market will accelerate after the U.S. election."
"Gold is the only defense against the results of the U.S. election," he said. "If the Democrats win, gold will go up. If Republicans win, gold will go up" with "both parties … masters at providing a leadership vacuum."
Meanwhile, "the glut of the dollar debt in central banks around the world is approaching a critical level," Schmidt said, and central banks are slowing their acquisition of U.S. debt, which will further weaken the dollar.
And the economy will enter recession in the first quarter of 2007, he said, depressing the greenback even further.
Overall, a global shift from the dollar continues while our trade imbalance grows larger and larger, said Peter Spina, chief investment strategist at GoldSeek.com.
The greenback is "in dire trouble so investors in gold know the risk is one to the upside with only short-term fund traders taking gold lower for additional opportunities to add at discounted levels," he said.
Breaking point in the Middle East?
There's another reason for gold's likely climb that the market has mostly ignored lately: fresh tension in the Middle East.
"The strongest reason to own gold right now is the fact that we have three U.S. aircraft carriers with task forces parked opposite Iranian shores," said Ralph Preston III, an account executive at San Diego-based Heritage West Financial Inc.
And Saudi Arabia has put its entire navy and special forces units in defensive position around the world's largest oil terminal, Ras Tanura, said Preston. News reports last week said there were threats of a possible al-Qaida attack on Persian Gulf oil terminals.
"This is an unusually high concentration of military build up on the part of the United States in the Persian Gulf," he said.
And "given Iran's defiance to the U.N. Security Council's demand to halt uranium enrichment — and with China and Russia, both staunchly opposed to any type of punitive action to be taken against Iran — it appears that the Bush Administration has more than diplomacy on its agenda," said Preston.
The U.S.'s role as the "guardian of the global economy, primarily the responsibility to make sure that we all have a steady, cheap, sec
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