Gold futures highest in 16 years
DENVER – Gold futures hit a 16-year high Monday, continuing a bull run that has gold companies “living the dream,” according to one industry analyst.
The February gold futures contract hit a high of $457 a troy ounce on the Comex division of the New York Mercantile Exchange on Monday, the first time gold has risen above $450 an ounce since 1988. The price settled at $455.80, a jump of $4.30.
It costs gold companies, on average, about $250 an ounce to produce gold, so they make “a healthy profit” when gold hits $400 an ounce, said mining analyst Doug Silver of Balfour Holdings Inc. in Denver.
“At $450 an ounce, we are living the dream,” Silver said. “If it goes to $500, as the saying goes, it just doesn’t get much better than this.”
Gold typically moves in the opposite direction of the U.S. dollar because gold is seen as a “safe haven” investment when the dollar is under pressure.
“Our deficit just keeps growing and our current accounts are in trouble,” Silver said.
Gold-company stocks weren’t as impressive Monday, however, because of some profit-taking after most gold stocks experienced significant gains last week.
Shares of Newmont Mining Corp., the world’s largest gold producer, closed at $49.21, up 32 cents, on the New York Stock Exchange.
But the Denver company remains bullish on gold prices.
“We see continued weakness in the dollar,” said Newmont spokesman Doug Hock. “And we have strong leverage to the gold price, so this is good news for our shareholders.”
Every $10 rise in the gold price equates to an annualized increase of $50 million in Newmont’s net income, Hock said.
Dale Doelling, chief market technician at Trends In Commodities, an industry Web site, thinks the gold markets will pull back in the short term.
The last time gold futures fell was on Nov. 2, he said, “and the market has been straight up from there.”
But Doelling thinks some market watchers have “tried to analyze the gold price to where it has become paralysis through analysis. Gold is simply in a major bull trend right now.”
Doelling intends to ride the gold bull market to its top, but he said he has “no idea” where that top might be.
“I stay with a trend until the price tells me otherwise,” he said. “I’ve seen that some people are selling out of gold now, and more than likely, they are going to miss the biggest part of its bull run.”
Silver said he anticipates profit-taking in gold company stocks to continue until the end of the year, as fund managers lock in profits to boost their year-end numbers.
But, he said, “January could be a lot of fun” for gold stocks.
The U.S. dollar will remain under pressure, Silver said, and gold demand is rising about 2 percent to 3 percent annually while production is leveling off.
Also looming large, he said, is increased demand from China as growing wealth there will make more and more Chinese become gold consumers.
“A lot of external forces will keep gold strong for a while,” Silver said. “The prospects of it being over $400 an ounce for the foreseeable future are very good.”