ST. LOUIS (MineFund.com) -- As the US dollar gold price started June within $10 per ounce of its all-time record in nominal terms, sentiment and momentum continued to favor bullion. However, investors need to be leary of the risk of hedge funds setting up a scalping - much as funds did with the platinum, but especially palladium, spikes early last decade.
The average gold price in May of $1,204/oz was a new record high, handily topping the previous monthly average high of $1,182/oz set last December. In inflation adjusted terms, the gold price matches prices last seen in April and May 1981.
Silver remains relatively muted, failing to scale the heights set in January ($18.53/oz average) with a monthly average price of $18.30/oz. It's also well short of the March 2008 spike to a monthly average price of $19.66/oz. Based on long run averages since 1968, gold appears relatively overvalued compared with silver.
Gold continues to hold its purchasing power against oil since crashing to an all-time low ratio of 7.05 barrels per ounce of gold in August 2008. For this past May, gold traded at to the long-term ratio of 16 barrels per ounce of gold. This should continue to fuel gold mining company profits as input costs adjust favourably.
The change in the gold-oil ratio has been remarkable since 2008. From the start of gold's current bull cycle, it tumbled in value relative to oil, averaging a little over 10 barrels per ounce. It has never traded below 13 barrels per ounce since November 2008.
The rise in the price of gold concurrent with the fall in equity values resulted in the S&P500 weakening again to the worst level against gold since March this year, and matching the 0.85 ratio of January 1991. In the last decade, equity investors have suffered an 83% devaluation compared with gold.
Another record was set by the SPDR Gold Shares exchange traded commodity. For the first time ever the fund surpassed 40 million ounces in trust, with a total of 1,268 tonnes (40.8moz) in storage.
Remarkably, 3.5 million ounces (108t) was added to the trust in May alone. It took one and a third years to add the 10 million ounces (311t) that took GLD to 40 million ounces. That underscores how powerful the gold ETF has been in supporting gold prices since the fund has - on an annualized basis - been consuming two-fifths of annual global gold production. The prior 10 million ounces was stockpiled in less time at just over a year between December 2007 and February 2009.
The bad news for policy makers is that the GLD investments represent $50 billion of 'parked' money. Combined the gold ETF with all its commodity traded fund peers, and there is several hundred billion dollars crouched in defensive postures.
Finally, it's worth noting that gold priced in euros breached EUR1,000 for the first time in the London Fix.
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