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Gold's "Z-Score" Defies George Soros' "Bubble"

Commodities / Gold and Silver 2010 Sep 17, 2010 - 08:28 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD broke new Dollar records for the third time this week in London trade Friday morning, peaking above $1282 per ounce as world stock markets extended their 2% gains from Monday.

Major-economy government bonds also rose, pushing interest rates lower as new German and US data showed inflation stalling on the official measures in August, while crude oil recovered above $75 per barrel.


Silver rose once again too, sitting just 7¢ off a three-decade high at the London Fix of $20.85 per ounce, and gaining 5.0% from last week.

The Dollar rallied from near 6-week lows to the Euro, which held gold at a 0.7% loss from last Friday's finish at €31,415 per kilo.

By the start of New York dealing today, gold priced in Dollars stood 2.4% higher for the week, nearly 29% higher from this time last year.

"Unambiguously...gold price developments do not resemble the statistical characteristics of past bubbles, including those of the US housing market, the Nasdaq technology bubble, and the Japanese Nikkei equity market bubble," says a new research paper from research and advocacy group the World Gold Council.

Citing the statistical "z-score" – which shows gold avoiding out-sized moves – "The gold price is [also] consistent with its long-run average level compared with a range of different assets, including equity indices and hard assets like oil," says the WGC.

Hedge-fund legend George Soros – whose Soros Fund hold a $645 million in gold – yesterday repeated his comment that gold is "the ultimate bubble".

"Clearly interest is building with the price movement," said US Gold CEO Rob McEwen, formerly of world No.2 gold mining stock, GoldCorp, in a Bloomberg interview earlier this week.

"The trend is up, that's what people should focus on, that's the important part."

Asked about Soros' view, "People are worried about all the money that's being printed," said Diane Brady, senior editor at BusinessWeek in New York, speaking to the BBC World Service last night.

"They look at the alternatives for where to put the money they already have, and they really do not see a lot of options other than gold."

Helping support the current gold price rise is also "a rise in physical demand," says the latest ABN AMRO Metals Monthly from London's VM Group consultancy, citing last month's 13% rise in Indian imports and strong demand in Vietnam following the 5% devaluation of the Dong currency.

Dismissing speculation that the People's Bank of China is buying gold at current prices, "[Private] gold demand in China is nevertheless up 40% this year," says VM.

On the supply side – and despite current prices standing over $600/oz above gold mining cash costs – "the gold market remains tight as production rates fall behind demand growth."

The lack of European central-bank sales, plus emerging-market states buying gold, "is giving a very powerful bullish signal."

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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