Gold Futures Index (GOLD)

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Unreal: Gold Shatters Record Highs on Faltering Global Growth

http://www.thestreet.com/story/11223942/1/gold-shatters-1800-on-faltering-global-growth.html

By Alix Steel 08/18/11 - 02:43 PM EDT

NEW YORK (TheStreet ) -- Gold prices soared to a new record after Morgan Stanley(MS_) downgraded the U.S. growth forecast sending stocks plummeting.

Gold for December delivery closed up $28.20 to a record of $1,822 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,829.70 and as low as $1,786.80 while the spot gold price was climbing $32.30, according to Kitco's gold index.

Silver prices settled up 33 cents at $40.68 an ounce. The U.S. dollar index was up 0.57 at $74.20 while the euro was down 0.65% vs. the dollar.

Gold prices marched to record highs Thursday after Morgan Stanley said the U.S. would grow only 3.9% in 2011 down from 4.2%. Growth expectations for 2012 were also cut from 4.5% to 3.8% and the investment bank delivered another blow by saying that the U.S. and Europe are close to a recession.

The Wall Street Journal added fuel to the fire in an article Thursday which said that U.S. regulators are investigating U.S. arms of European banks to make sure they have enough capital.
Deutsche Bank also slashed China's growth forecast for 2011 to 8.9% from 9.1% and said the economy would only grow 8.3% vs. 8.6% in 2012. Western nations have been relying on strong growth from China to spur exports in their own countries and any significant slowdown would add to the burden western countries, like the U.S., feel with anemic growth and massive debt.

If growth in China comes to a screeching halt, that would also be bad for gold as the country, along with India, are responsible for the majority of gold buying in the world. According to the World Gold Council's recent Gold Demand Trends Report, India and China saw a gold demand growth rate of 38% and 25%, respectively, in the second quarter compared with a global growth rate of 7%.
Although overall gold demand fell 17% due to lack of ETF buying, jewelry buying to coin and bar buying surged in both of the emerging market countries.

Gold also popped Thursday as the U.S.' inflation reading for July came in hotter than expected. Prices rose 3.6% year-over-year and 1.8% excluding food and energy. The steeper than expected overall inflation reading gave gold an extra boost as investors piled into the metal as an inflation hedge, protection against paper money. But core inflation is still lower than the Federal Reserve 2% mandate, which is a green light for low interest rates and might prompt more quantitative easing talk.

Although many traders have been looking for some kind of pullback in gold as it has soared more than $200 in just over a month, gold is resisting any sort of correction especially as stocks were sinking triple digits...


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