Agoracom

The Bear Stearns bailout sent Gold to an all-time intraday high of $1,033 an ounce in mid-March. Since then, it's bounced in a trading range between $850 and $990.

Trading as a commodity, gold underperformed oil and platinum for the first half. Two-thirds of gold's demand as a commodity comes from jewelry fabrication. And that demand fell 55% during the first half.

"Demand was way down, but prices rose 15% for the first half of the year. That suggests the primary demand is investment demand," says Tom Winmill, portfolio manager at the Midas Fund (MIDSX). "Gold is acting as an alternative currency."

Gold can be used as a currency hedge, inflation hedge or portfolio diversifier. It's also considered a safe haven, because in times of economic and political uncertainty it continues to hold its value. Hence the surge when Bear Stearns blew up.

Rising inflation and a shaky financial system has put the Federal Reserve Bank in a precarious position. Central banks battle inflation by raising interest rates to tighten the money supply. However, to prevent any collapse in the financial system, the Fed needs interest rates low to keep markets liquid. This easy money fuels inflation, leaving the US economy in a vicious circle and the Fed walking a tightrope.

Today's market, when people don't like the dollar and interest rates remain low, is bullish for Gold. Jeffrey Christian of the CPM Group – the precious metals research and consulting company in New York – says gold could take another dip to between $880 and $900 in August, but he expects the yellow metal to top its earlier high in the last quarter. The Midas Fund's Winmill is even more optimistic.

World jewelry demand – led by India's Gold Buyers – typically picks up in the second half of the year as manufacturers prepare for the holiday season. If interest rates remain low and the Dollar weak, Winmill says Gold could top $1,200 by year end.

Source: http://goldnews.bullionvault.com/gol...