Inflation Fears Propel Gold Prices
As the Dow Jones Industrial Average approached record lows, gold prices shined on a seven-month peak, on Tuesday. Details of President Obama’s new stimulus package catapulted inflation fears causing investors to hurriedly divest out of their portfolios, dumping company stocks and demanding more gold – considered a safe haven asset – according to Bloomberg.
Gold rose for a second straight day on speculation the recession will deepen, boosting the appeal of the precious metal as a haven asset.
In fact, from some investors’ perspective, the stimulus package won’t help the American recession. As AP reported in its article Gold Prices Soar as Dow Takes a Dive:
If it stimulates anything, it’s going to stimulate gold, said Peter Schiff, president of Euro Pacific Capital, of the President’s plan. As the government pumps billions of dollars into the financial system, analysts expect inflationary pressures to resurface. The more inflation there is, the more attractive gold is, Schiff said. Ultimately, you’re going to see much bigger upward moves in gold when the dollar starts to collapse.
Besides gold traders, or jewelry owners, gold producers are on the winning team, since their market capitalizations are valued according to the size of their deposits (million of ounces) multiplied by the current metal prices. Gold mining companies, then, may flourish in 2009 while the Dow Jones continues to dive.
Inflation may be an unintended consequence of the President’s spending-focused plan, but investors’ opportunity to invest in the mining sector may just be a silver – or gold – lining in an otherwise cloudy setting.