By Kathleen Duncan - Pinnacle-Rarities

Certainly not the price. Gold hit a 13 month low this week (October 23rd). It seems obvious the government can’t continue to bail out banks to the tune of trillions without causing the dollar to decline and gold to ascend. Then why is the exact opposite happening? What’s more, why is there no physical product available? And, shouldn’t the increased demand and low supply push gold in the other direction? We have taken calls from baffled clients asking for our take on this surprising occurrence.

Historically, during times of economic uncertainty, tangible assets have provided a safe haven. In the past month, sellers have outnumbered buyers 100 to one for gold and silver bullion. The increased demand for physical product should have forced spot prices higher. However, there are some short-term events placing negative price pressure on gold and other metals.

The global market is a different animal than it was just five years ago with short selling of commodities via electronic trading funds (ETFs) playing a dominant role. The world wide credit crunch has played a role as well. Hedge funds and institutional buyers have been forced to “unwind” their long positions in commodities to pay for losses. By holding prices at lower levels through short selling, they can effectively avoid margin calls. This sell-off enables them to keep from selling positions in other market sectors that have crashed even lower.

Even as these factors have forced gold to flounder, they foretell a bright future for the king of commodities. Heavy demand and weak supply have forced premiums on bullion to rise to unprecedented levels and delivery dates to remain a mystery. With these fundamentals in place, and the inevitability that the influences holding down metal prices will eventually reverse, we remain bullish. In 2009, the price of gold will likely blow past the all time high seen earlier this year.