J&T Coins LLC Blog

Days Not to Buy Gold Identified

By Patrick A. Heller, Numismatic News March 09, 2010

Despite the fact that the price of gold rose more in the previous decade than almost all U.S. paper assets, the rise has no short rapid spurts. Actually, the market action that limits gold from breaking upward is just one more bit of evidence of the manipulation of gold prices.

Savvy analysts have long noted that as the price of gold might trend upward during daily trading, it has almost never increased by more than 2 percent from the previous day’s COMEX close. Once the price of gold might increase by 2 percent, that event would almost automatically trigger a round of sell orders to either cap the rise or even cause the price to retreat. Even if buyers stepped up their purchasing, it was obvious that a maximum of a 2 percent daily increase at the COMEX close was the unpublicized “rule” imposed by the U.S. government and its trading partners.

This rule of gold price manipulation also has an accompanying rule. If the price of gold goes up by 2 percent in one day, it is prevented from rising by more than 1 percent the following day. Further, under no circumstances is gold to be allowed to rise consistently, as this pattern would attract more buyers.

A few months ago, commodity researcher Adrian Douglas (whom I cited in last week’s column) reported on his long-term study of the COMEX gold closes. He tracked the percentage change from one trading day to the next. Over the course of the study, the price of gold declined from one day to the next by more than 2 percent over 100 times. It increased by more than 2 percent only six times – and this in a market where the price rose by a huge percentage over time. Only once, as best I recall, did the price of gold increase by more than 2 percent one day and by more than 1 percent the next day. Yet there were numerous instances of consecutive daily price declines of 2 percent or more.

A market free of manipulation with prices rising over time would normally show a greater percentage of strong up days than down days. A pattern of continuous price rises would encourage the “momentum” investors to enter the market. Those wishing to hold down the price of gold have an incentive to discourage such investors from helping to drive up gold even higher. The unusual consistency of this 2 percent rule is signature of a manipulated market.

Short term traders can try to take advantage of this pattern. On any day that the price of gold rises by 2 percent, consider selling and replacing at the expected lower price in the next 24-48 hours. If you are looking to buy for the long term, don’t buy on a day where the price of gold is up 2 percent. Instead, wait for a quick retrenchment within a day or two. Just keep in mind that every once in a while the gold market will act contrary to this “2 percent rule.” If you can live with that risk, then you can take advantage of the manipulation of the gold price.

Baltimore Show Report

At the Baltimore show last week, dealers continued to be tentative at buying and selling common classic U.S. gold coins (and most other rare coins). In many instances, dealers were waiting for orders before stepping up to buy coins at the bid side of the market. There was more than usual interest (as we saw in Long Beach a month earlier) in purchasing damaged U.S. gold coins, including those used in jewelry, but only at price levels that were close to scrap metal value. My own company’s sales were solid and higher than expected, given the state of the market. There was, however, one dealer who told us late in the show that he had only sold three coins up to that point.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Update (www.coinupdate.com) and Financial Sense University (www.financialsense.com). His periodic radio interviews can be heard on the Korelin Economic Report at http://www.kereport.com.

By John Waggoner, USA TODAY If you like to have your investments close at hand — say, buried 12 paces northeast of the old apple tree — then gold bullion is the kind of investment you’d like. But even if you’re not worried that the dollar will plunge, owning gold isn’t a bad idea. You hear many people pushing gold these days, citing our nation’s $12.4 trillion debt. Gold is the classic hedge against inflation. If the U.S. resorts to printing money to repay our debts, the value of paper dollars will fall, and gold prices will skyrocket.

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Of course, given that gold has soared to $1,132.60, a 348%, gain from its July 1999 low of $252.80 an ounce, gold is a pretty easy sale these days. But gold hasn’t skyrocketed because of out-of-control inflation, which has risen at a 2.53% annual pace since July 1999.

 And inflation probably won’t rear its ugly head this year, either. True, the Federal Reserve has pumped trillions of dollars into the economy to keep it from depression, and unless it drains some of that money, inflation will be an issue later.

 But not just yet. For persistent inflation, you also need a rip-roaring economy and low unemployment. In an overheated economy, prices rise as demand outstrips supply. Workers demand higher wages to keep up with prices — and they can get them, because unemployment is low, and employers have to bid for talent. Eventually, the combination of easy money, low unemployment and rising prices combine to create an inflationary spiral.

 We’re missing two out of the three elements necessary for high inflation. That little something extra in your pay envelope is more likely to be a layoff notice than a raise: Unemployment was 9.7% in January. And demand is weaker than a cup of vending-machine coffee.

 ”We think we still have deflation,” says Frank Holmes, CEO of U.S. Global Investors.

 And, in fact, gold isn’t closely tied to inflation. In the 20 years from January 1981 through January 2001, gold fell 69%, while prices doubled.

 Gold prices are closely tied to the value of the U.S. dollar on the currency exchanges, however. When the dollar falls, gold tends to rise, and vice-versa. The dollar has fallen 46% vs. the euro since 1999.

 The dollar has been gaining strength since December but only because other currencies look so awful. Investors have been dumping euros because they’re worried about a default on Greek government bonds. They’re buying dollars, if only because the U.S. seems more stable in comparison.

 Keeping 5% or so of your portfolio in gold isn’t a bad idea as a hedge against financial catastrophe. “It’s the ultimate downside protection for events we can’t forecast,” says Rachel Benepe, co-manager of First Eagle Gold fund.

 Most gold mutual funds buy shares of gold-mining companies, which often soar when gold rises. Top-performing gold funds are in the chart.

 If you want physical gold, consider 22-carat U.S. gold Eagle coins. You can also buy 24-carat Canadian Maple Leaf coins, which have the same amount of gold as Eagles, but not the other metals used to harden the coin. Toss an Eagle from a skyscraper, and you’ll still have a coin. Toss a Maple Leaf from a skyscraper, and you’ll have a gold pancake.

 Coins also don’t have to be tested for weight and gold content, as gold bars sometimes do. “With a 100-ounce bar, there’s a greater chance someone has shaved a few ounces off it,” says David Beahm of Blanchard & Co., a New Orleans gold dealer.

 Shop around. Prices can vary considerably from dealer to dealer. And don’t buy gold through the mail unless you’re 100% certain the dealer is legit.

 Physical gold has to be stored somewhere. Most people are happy to put their gold in a safety deposit box. If you don’t trust banks, however, you have to figure out where to keep your gold, which can lead to guns, dogs and treasure maps.

 If you don’t want to own physical gold, consider a gold exchange traded fund, such as iShares Comex Gold Trust (ticker: IAU).

 Rising inflation or a falling dollar may be in the cards — but you have time before it happens. For most people, a modest investment in gold isn’t a bad idea. “By no means should you have the majority of your portfolio in gold,” Benepe says. “But you never know when you’ll need it until you need it.”

 John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays. His book,Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. Click here for an index of Investing columns. His e-mail is jwaggoner@usatoday.com. Twitter: www.twitter.com/johnwaggoner.

Mint Stats: Mint Hikes Prices for Gold Buffalo, Spouse

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• Mint Stats: Mint Hikes Prices for Gold Buffalo, Spouse
• Think Twice Before Cleaning Any of Your Coins
• Disabled Vet Proof Prices Rise

Keep an eye on sales of gold Buffaloes and First Spouse coins in coming weeks, because they’ve seen a price hike.

When gold edged above a $1,100 an ounce average for a week on the London Fix, the Mint increased prices in accordance with its policy to reflect market prices. The change took place Feb. 24.

The price of First Spouse coins increased by $25 and gold Buffaloes by $50. The proof First Spouse coins went from $704 to $729, uncirculated First Spouse coins went from $691 to $716 and 2009 Buffalo gold coins increased from $1,360 to $1,410.

And in its first week of sales, the coin honoring Disabled American Veterans sold more than 98,000 coins, almost one-third of its total mintage of 350,000.

Think Twice Before Cleaning Any of Your Coins

Forrest Gump’s words rang in his head, “Stupid is as stupid does.” Our numismatist’s 1945 “micro S” Mercury dime had come back from the grading service as “cleaned.” The dime’s value had been greatly diminished by his less than artful cleaning.He remembered the day of his fateful mistake. The sun was shining, birds were singing and flowers were in bloom. Amid all this loveliness, he was sorting his coins.

He had quite a few Mercury dimes in two-by-two holders. Looking through them, the 1945 “micro S” dime literally leaped out at him.

He had forgotten about this purchase of many years ago. It was a gem coin that he had meant to send off to the grading service. Examining the dime, he was impressed by the luster and wonderful strike.

The only thing wrong was some dark “rim toning” from 3 to 6 o’clock. The toning was a genuine distraction to the rest of the coin.

Examining the coin through his loupe, he saw that the coin had never been cleaned as was evidenced by the luster and lack of hairlines. The dark bluish hue of the rim toning just did not sit well. Without the toning the coin would be stunning.

What to do was his quandary.

The toning would not impact the coin’s high grade, but it would have so much more eye appeal if it were totally white. In his head he heard voices saying “Clean the coin. Clean the coin.”

Cleaning any coin went against the advice he always dispensed to newcomers, which was:

“Don’t clean coins unless you’re willing to suffer the consequences from a botched cleaning.”

It was only a little toning and a quick little swish of a commercial coin cleaner would eliminate it. What could go wrong? To be safe he would experiment with a coin or two from his pocket change to make sure he had his technique down so as not to mar the luster or leave any hairlines.

He had cleaned coins in the past with a simple washing, such as his coffee can purchases of coins deposited in can and jars over the years. He seldom used commercial coin cleaning solutions unless the coins had been badly contaminated with dirt, grease, PVC slime/residue and other foreign matter.

These solutions had been used with inexpensive coins. He considered this to be conservation vs. letting the coins deteriorate due to surface contamination.

He used a cotton ball to apply the cleaner in a gentle blotting motion so as not to create swirl marks or hairlines. Still the toning seemed resistant and stubborn.

As he prepared to blot again he heard the voices: “A little more pressure and rub it just a tiny bit to remove it all.” Now other voices called out to him: “Don’t do it. Don’t do it.”

Snapping back to the present, our numismatist murmured, “just a little rub,” as he applied the cotton. He followed the cleaning with a quick rinse of the coin in water. The toning had disappeared and the coin look wonderful, but perhaps with a sense of foreboding he did not examine the coin under magnification.

Now, weeks later, he had the dreaded results. “Stupid is as stupid does.” He would, of course, be quiet about his failure. Had the coin come back without mention of the cleaning and in the grade he wanted he would have proclaimed himself to be a genius.

The moral to our story is that sometimes things are best left alone. With cleaning coins you need to know what you’re doing.

There are several things along the way one needs to consider before cleaning any coin. The first one is: Why do you want to clean the coin? If it’s because of toning, remember toning is a natural condition that should not affect the grade unless it is covering marks, blemishes etc. Secondly, can you stand looking at a botched job? For instance, a “pink coin” is not attractive. This has been known to happen with copper and bronze pieces.

Thirdly, can you afford to lose the value of your coin if it is damaged in the cleaning? Additionally, get all the advice you can. Discuss the cleaning with a dealer or fellow collector.

There are books that discuss the cleaning of coins and all the pitfalls. Getting educated will help.

Finally, if you have a coin that you are tempted to clean, consider selling or trading in the coin to someone who may appreciate it. There are collectors who actively seek attractively toned coins. This is the preferable route to ruining a coin’s numismatic value.

If after all this you are still intent on cleaning your coin do be careful. Try your cleaning technique on some coins from your pocket change.

Looking over the demographics of the hobby most of us are not chemistry majors. Cleaning, or better said conservation is best left to the professionals.

Gold Volatility Whips Market

Other News & Articles

• Gold Volatility Whips Market
• US Mint 2010 Gold Eagle Coin Values, MS70s Average $1340/oz
• US Mint Releases Millard Fillmore Dollar, Offers 25-Coin Rolls

The gold market suffered but overcame two major onslaughts last week.

After U.S. markets closed last Wednesday, the International Monetary Fund announced that it would offer the remaining 191.3 metric tons of gold from its planned gold sales onto “the market” rather than central banks. By making it appear that more than six million ounces of gold might be dumped onto retail channels over time, some investors panicked into selling, which pushed down the gold price.

Gold eventually fell more than two percent but then recovered all lost ground within 24 hours of the announcement.

The nature of the IMF announcement indicated that it was done to drive down the price of gold. Revealing such plans is a tactic that guarantees that the IMF sells the gold for the lowest possible price. If the IMF was really trying to raise the maximum funds for its own operations, it would not sell its gold by this process.

The quick recovery in gold prices meant that another tactic was needed. Late on Thursday afternoon, the Federal Reserve announced that it had increased the interest rate banks would have to pay the Fed for overnight borrowings. This was meant to be a signal that interest rates might rise in the near future, which again knocked down precious metals prices.

Still, gold came right back the next day. Over the weekend, Asian markets climbed as high at $1,130. When the U.S. markets opened Monday, the price was immediately taken down to the $1,110-$1,115 range.

There is a huge incentive to hold down gold prices this week. Gold options expire Tuesday, with more than 5,000 call contracts (over 500,000 ounces) that could be exercised at a price of $1,100. Should the COMEX close Tuesday above $1,100, these contracts for immediate delivery would be called. That would put a supply squeeze on the dwindling COMEX gold dealer inventories, which are down 25 percent in the past three months to only 1.65 million ounces.

Also this week, Fed chair Ben Bernanke will be testifying before the House Financial Services Committee and Senate Banking Committee. There is an effort under way to encourage a member of one of these committees to ask Bernanke the very same questions about admitted Federal Reserve gold swap arrangements that the Fed has refused to disclose in response to the Gold Anti Trust Action Committee’s Freedom of Information Act Request. If ever there was a week that Bernanke needed to appear competent, this is the week.

The U.S. government, the member nation with the largest voting power in the IMF, leaned on the IMF to make it appear that some of its gold might be sold to the public (which, if it occurs, I think will at most be only a token percentage of the total), then risked crashing stock and bond markets by raising one of the key interest rates. To me, these actions were obviously taken solely to try to suppress the price of gold.

Such extreme measures worry me that there are some horrendous financial developments about to break. There are so many potential crises waiting to collapse that I cannot discern just which ones they might be.

In the short term, I expect extremely volatile gold and silver markets. I expect to see more extreme efforts made to hold down prices at the same time that demand for physical metals soars. Daily swings of 5-10% are possible. I expect that the result of all this volatility will be significantly higher prices than we see today.

The safest way to participate in the continuing long-term bull markets for gold and silver is to buy physical metals, not paper contracts, and avoid trading on margin. As prices are whipsawed, those with margin accounts could actually lose money despite prices eventually reaching new highs.

In the 1979-1980 bullion boom, I worked as a certified public accountant. One client was a commodity broker who personally bought several thousands of ounces of silver on margin. The day before the price of silver rose almost consecutively until it reached the January 1980 peak, it dipped about five percent. This client was unable to cover the margin call and saw his silver position closed out. If you don’t buy on margin, you won’t have this risk. At that time, I owned significant positions in gold and silver coins, almost all of which I sold in early 1980 for sizable profits.

The idea of purchasing precious metals on margin is to multiply the hoped-for profits. However, in volatile markets, the strategy could backfire. Buy physical gold and silver with your own funds, then relax and sit back to watch the coming fireworks.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Update (www.coinupdate.com) and Financial Sense University (www.financialsense.com). His periodic radio interviews can be heard on the Korelin Economic Report at http://www.kereport.com.

US Mint 2010 Gold Eagle Coin Values, MS70s Average $1340/oz

By Darrin Lee Unser on Feb 22nd, 2010 in Coin or Numismatic News | No Comments 

The United States Mint released 2010 American Eagle Gold One Ounce Bullion Coins to its network of authorized buyers one month ago. Sales on that day, January 19, 2010, were brisk with 30,500 sold in the first twenty-four hours.

The numbers have since remained relatively steady, but not out-of-the-park impressive. The latest US Mint figures indicate 151,000 eagles have been drawn from their inventory. 54,500 more will need to be scooped up by month’s end to match January and February totals from 2009.

The price of gold is affecting demand, and seller inventory levels. The yellow metal premiered at just above $1,120 to start 2010. Prices rose to over $1,150 within the first week, but then retreated toward $1,058 by early February. Gold has since returned to the $1,120 area. Both buyers and sellers have been cautious given gold’s volatility. As a prime example, less than one hundred 2010 American Gold Eagles have been auctioned on eBay US. It is sketchy at best to scrutinize the eagles too deeply with so few sold, but the numbers are nevertheless worth noting.

Non-graded Gold Eagles ranged in price from a low of $1,146 to an absolute high where one went for $1,300. Interestingly, it was purchased on the evening of February 19th, the ending day of the data set used in this analysis. These coins, usually dubbed “straight from the roll” averaged out at $1,223.

MS69 grades did fare better, but not significantly. The lowest price came in at $1,200 while $1,364 topped out the grade. They averaged $1,265 or about $40 over their ungraded counterparts — not much of an increase when also factoring in the time, effort and price to have them graded.

MS70 grades, as typical, attracted the best money. At least 30 of the MS70’s appeared on eBay during the time frame with the least expensive price at $1,265 (which also happens to be the average paid for an MS69). $1,525 was the ceiling. This coin had a “First Strike” designation. “First Strike” is a term used by PCGS (Professional Coin Grading Service) that describes coins submitted within 30 days of their US Mint launch. Overall, the MS70’s average was right at $1,340. That is $117 higher than non-graded examples.

There were nearly 3 bids per listing on average for successfully auctioned eagles.

As mentioned, the US Mint has sold 151,000 ounces of Gold Eagles as of Feb. 19. However, this total also includes tens of thousands of the 2009-dated coins. The Mint has 2009 inventory on hand, and is requiring authorized purchasers to buy at least one for every three of the 2010s. The Mint announced on Jan. 13 that it had 51,000 of the older versions.

For additional information on this year’s eagle, to include coin specifications and design details, visit the coin information pages 2010 American Eagle Gold Bullion Coin.

The Mint does not sell its bullion coins directly to the public. Instead, it works with a small number of authorized purchasers who in turn sell the coins to precious metal providers, investors, dealers and collectors. These coins do not have a mint mark, unlike their numismatic proof and uncirculated counterparts struck specifically for collectors.

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Regardless of their expensive annual fees, frequent tracking errors, and the simple fact that you’ll never be able to actually touch the gold or silver your ETF claims to hold, there are several more reasons ETFs should never be used by precious metals investors. An important rule change by COMEX, the American commodity exchange, allows ETF substitutes for precious metal delivery.

Paper as Metal

To address a temporary problem of liquidity, COMEX has systematically created an even bigger problem for investors. The exchange allows investors to make good on their futures positions with gold and silver ETFs rather than the real assets, thus opening up the door for hugely distorted market prices.

How it Works

Under the clause 104.36 in the COMEX rulebook, exchanges can take place on the exchange as long as the products meet certain criteria. After sorting through legalese, investors find that the criteria isn’t as demanding as one would expect from a multi-trillion dollar exchange, but is actually quite loose. COMEX requires that exchanges be made in economically equal products.  For instance, a 1000 ounce silver futures position can be used in the delivery of 1000 ounces of silver, despite their inherent differences.

This creates immense problems for investors, as well as the exchange itself. First, no silver actually trades hands, but only a silver derivative that has supposed claims to silver.  Second, the exchange-traded fund is economically similar in that it has equal worth to the same amount of silver; however, investors cannot receive physical delivery from the ETF issuer. In essence, purely derivative investments are equal to physical metals in the eyes of COMEX, even though the reality is quite different.

Further Complications

Reading from the prospectus of the two biggest gold and silver exchange-traded funds reveals that through the COMEX marketplace, paper can really be turned into gold!  The popular SLV ETF discloses in its prospectus that there are times when the exchange-traded fund will hold cash, or cash equivalents, allowing itself the opportunity to issue more shares than the silver it actually holds in the trust.

In addition, the exchange-traded fund has the ability to make claims against third parties (a derivative) to track the price of silver on the marketplace. This opens the door for large manipulation in the silver markets, as investment dollars in the ETF can be placed on derivative bets. Then the shares can be exchanged through COMEX to meet delivery on futures positions. 

The result is that derivative products owned by SLV can easily find their way into what is supposed to be a purely physical market, allowing for the opportunity of an oversupply of silver compared to what is actually in existence in vaults.

What it Means for Investors

ETF investors are clearly at a disadvantage, although the chance of manipulation is only a bullish signal for physical investors. COMEX rules have allowed artificial inflation of the amount of silver futures available prices, and it is sure that physical metals will only gain in value as this comes to light. There is simply no better investment than physical metals both for the short and long term.

Dr. Jeff Lewis

Gold Ready for New Highs?

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As I write this mid-day on Monday, gold has addded more than five percent to recover from of its intraday lows 10 days ago. It is about $1,100 at the moment.

It looks like the $1,108 level is one that would signal to technical traders to again jump in to buy. If gold can get and hold that level, and there is a good possibility it will occur this week, then it’s highly likely that gold will generally rise in the short term to pass the early December 2009 all-time high of about $1,212. It won’t go in a straight line, but it could rise so quickly that it will amaze people.

Once gold reaches a new record high, the odds are that it would pause for some profit-taking before again rising up to even higher levels.

There continues to be so much demand for physical gold (versus paper gold contracts) relative to the available supply, that many would-be buyers seeking immediate delivery in the London market are having their orders rejected by every trading house on that exchange.

London is the world’s largest gold trading center, so larger buyers frequently try to place their orders there. The London Bullion Market Exchange trades contracts for physical delivery of gold. In theory, the trading houses on the exchange have the physical gold to deliver on maturing contracts. It does not make sense for these firms to reject orders on which they would make a profit. With multiple reports of great difficulty experienced by buyers seeking delivery of London contracts, a great suspicion is raised that the physical gold may not all be there.

I would not be surprised if, within a month, a two-tier market develops between the physical and the paper gold spot prices. If this happens, the price for physical is almost certain to be significantly higher. The lower price for paper gold contracts reflects the risk that the seller of the contracts would default. Obviously, a buyer who takes custody of physical gold has no risk of seller default.

The recent major snowstorms in the eastern part of the United States have disrupted U.S. Mint production and delivery of gold and silver American Eagles. The U.S. Mint headquarters in Washington, D.C., was closed Feb. 8-11. Both the Philadelphia and West Point, N.Y., mints, the manufacturers of most Eagle products, closed on Feb. 10. The receipt of planchets to make the coins, the production of the coins, and the shipment of finished product were all interrupted. This has made existing supply shortages even more of a problem.

Even better than the positive outlook for gold, silver seems hugely undervalued at today’s levels. Silver fell more than 20 percent from its early December peak, with the result that the gold/silver ratio is now above 70. The long-term forecasts I have seen for this ratio range from about 10 to 50, so all of the analysts behind these projections like silver’s prospects better than gold.

My own long-term expectation is for a gold/silver ratio of about 35 to 40. If our analyses are correct, silver’s price should appreciate far more than that of gold.

It should be no surprise that most of the action in physical metals in the past two weeks has been in the silver market. It is almost unanimously one-way traffic, with buyers eager to buy but almost no liquidation by owners. As a result, premiums are rising and delivery times are stretching out into the future, with some products already having expected delivery of more than one month. Supplies are not yet as tight as they were in late 2008, but they are going in that direction.

Physical gold products are relatively available, though U.S. Buffaloes are up in premium and not that easy to find. Once the price of gold starts to rise to new heights, I anticipate that supplies will dry up, just as we are now experiencing with silver. Between now and the end of March, the precious metals markets could get very exciting.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Financial Sense University (www.financialsense.com). His periodic radio interviews on WILS-1320 AM can be heard at http://www.amlansing.com and on the Korelin Economic Report at http://www.kereport.com.

By David Lew
Two months after gold posted the historic high price of $1,227 per ounce, bullion investors have been caught in pains of losing money for every ounce of the yellow metal. On Thursday, gold plunged to its biggest one-day loss in 16 months. The yellow metal fell 4.4% in volatile trade, plunging below $1,060 an ounce.

Is all the bubble talk on gold turning true? Is gold price headed down to $1,000 or below that level in February? That is the question bullion investors and gold analysts are asking these days.

The biggest irony and risk in investing in gold these days is the disastrous predictions that bullion analysts with investment banks have been making all these months. While some analysts have predicted that gold price would skyrocket to an astronomical high of $3,000 to $ 5,000 per ounce in few years, several banks have been consistently predicting a great bull run for gold all these days.

I have been wondering whether the hype on gold price is created by bullion analysts with global banks.

Read now some interesting comments that several investment banks have made on gold recently:

According to Ernst and Young, which employs 144,000 people around the world, gold price will continue to rise in the long-term, reaching as much as $2,500 per ounce within the next two years.

”The underlying factors driving up gold prices remain in play and will continue to do so for some time, meaning that the precious metal will remain an attractive proposition. Gold prices will remain high. The world is not out of trouble and inflationary pressures cannot be ignored,” the investment bank said.

Recently, leading British bank Standard Chartered predicted in its latest Commodities Quarterly report that gold prices will continue to advance, with a particularly strong showing in 2010.

“The increased availability of scrap gold as prices surge to new highs will see gold average $1,300/oz in Q4 2010 – once the dollar resumes its weakening trend,” said Standard Chartered Bank.

It said that anyone with gold investment in their folds is well-positioned for a great future.

Similarly, Commerzbank said recently: “A further gold price increase has to be expected, especially as short-term-oriented market participants are likely to be jumping on the bandwagon.”

Likewise, Africa’s Standard Bank said that households in China have become the world’s No.1 buyers in 2009. “There is still very good physical demand for Gold ahead of [early Feb's] Chinese New Year.”

While several banks have been predicting a boom time for gold, there is one global bank that has been consistently sharp on gold price—HSBC.

Some months back, HSBC announced its gold price forecasts for 2009, 2010 and 2011. The world’s largest financial services group predicted that the yellow metal would average $990 per ounce in 2009.

HSBC also revised its estimate for 2010 from $950 per ounce to $1,100 per ounce, while it now pegs gold at an average of $975 per ounce in 2011.

Globally, banks have been the aggressive traders in gold. Banks view gold as safe assets. Banks lend money to people, if they are ready to pledge their gold for loans. Central Banks are trying to build up gold reserves so that nations’ foreign exchange reserves are stable and secure for the future.

But the only trouble is that when banks begin to predict gold prices, things go haywire in bullion market. Banks predict gold prices according to their whims and fancies. So, it would not be too much to say that banks are, in fact, trying to create the bubble phenomenon in gold, by forecasting gold prices without throwing light on basic fundamentals.

Can the bullion analysts and banks stop predicting gold price? Can the physical gold price go up or down according to the precious metal’s inherent asset and holding value?

MUMBAI (Commodity Online): Should investors fear a bubble in gold price? No, there is nothing to worry on gold investment and corrections in the price of gold should not be viewed as bubbles that would burst, says the World Gold Council (WGC).

Saying that gold investment demand across the world remains robust, WGC top officials said that suggestions of a gold price ‘bubble’ do not take account of gold’s market fundamentals.

“The gold price has been building steadily for nine consecutive years, ending 2009 25% higher than on 31 December 2008 at US$1087.50/oz. The PM gold fix in London on Monday 1 February, 2010 was US$1086.50/oz,” said Aram Shishmanian, Chief Executive Officer, World Gold Council.

According to him, the sustained break in gold price above the key $1000/oz level came in early September, with record highs being tested repeatedly over the remainder of 2009. “The current trading range should not be regarded as an overnight spike, but the result of a measured rise, supported by favourable and robust gold fundamentals,” he said.

Marcus Grubb, Managing Director, Investment, World Gold Council on gold demand: “Investor flows, more specifically from western markets, have provided a key means of support during the course of the credit crisis as investors sought to diversify their exposures to other assets and protect their wealth against the current ravages of the global economy as well as future market shocks. These western investor flows appear to have remained resilient even as the global economy has shown signs of recovery.

Furthermore, evidence suggests that even the more tactical elements active in the gold market are being firmly driven by positive sentiment toward gold’s fundamentals. Further price support was provided by a progressive recovery in jewellery demand after a pressured first quarter.

“The diversity in gold demand cited above is expected to continue across multiple sectors and geographies. It is this diversity which has helped insulate the precious metal from shocks impacting other assets. More tangible signs of economic recovery in the second half of 2009, especially in developing economies, also continue to provide support to the gold price”.

Aram Shishmanian said on gold supply: “Robust demand should also be viewed in the context of constrained supply. Significant drivers of the gold price were also apparent on the supply side in 2009. Traditionally, central banks have been suppliers of gold, but this is starting to change. Over the course of 2009, the market saw a structural shift in central bank reserve management as western central banks slowed gold sales and developing nations added to their gold reserves. Other factors contributing on the supply side were sizeable pockets of de-hedging activity, although most major producer hedge books have now been unwound, and a reduction in the supply of recycled gold to market from the extremely high levels seen in the first quarter of 2009″.