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DOING SOME DIGGING — Whither the price of gold?

I can't find my crystal ball, the one that gives a definitive answer as to what the gold price will be. Instead, I ...


I can’t find my crystal ball, the one that gives a definitive answer as to what the gold price will be. Instead, I am left reading various opinions on the subject, and the predictions are all over the map. Some say the price is going up, way up.

On June 11 Bill Murphy, chairman of the Gold Anti-Trust Action Committee (www.GATA.org) told an audience in Vancouver that gold is going to $5,000 an ounce. He posits that the world’s central banks have run out of gold to lend.

Think back to a decade ago when central banks began selling off their gold reserves. That strategy was blamed for keeping the gold price artificially low during the last half of the 1990s. During that time it fell from around $400 to a range of approximately $265-$275. The price stayed low until the middle of 2002 when the current rise began.

Murphy says his organization believes that much of the gold reported to be in central banks has been double counted, and that the banks are not properly accounting for gold they no longer hold. It is this double counting that is still suppressing the price.

“The more this suppression of the gold price is made known, the more countries and big financial interests will want to own gold — and the faster gold will soar toward $3,000 and then $5,000 an ounce,” he said.

I’m sure many of our readers would like to believe Murphy, but the price is not behaving as he wants. Already we are seeing the price of gold drop under pressures such as profit taking, inflation fears and speculation. The run-up ended in mid-May 2006 with the price hitting $725/oz. In the last four weeks, the price of the glorious yellow metal is heading down, falling nearly 25%. Overnight last night in New York, the gold price fell $44.50/oz, its largest single-day fall in 15 years. The price bottomed out at $550 and has since begun to climb. At 3 pm today (Wednesday) it was $562.

And the falling price is cutting deeply into the equity of gold mining companies. In the last month share prices are down across the board. Barrick is off 20%, Goldcorp 25%, Newmont 15%, Bema Gold 15%, IamGold 15%, Kinross 25%; the list is long.

Is this drop a mere blip or temporary market correction? Or does it signal a real drop in investor faith? Serious investors certainly have their own sets of criteria by which to judge gold price changes. Perhaps one of them has the answer to this question. Meanwhile, I just thought of another place my crystal ball might be.


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