The
Price Of Gold
Everyone would love to see the future,
but no one really knows where the price
of gold is going. In July 2008,
the major liquidation that was driven by
deleveraging caused by financial shorts
that were going against hedge funds were
also long inflation hedges like oil, gold,
oil stocks, and mining stocks appeared
to bottom out.
It is difficult to predict exactly where
the gold prices are going
since there are several external factors
that must be factored in when trying to
determine the future cost
of gold. The
first factor to consider is that gold gets
priced in the global markets in US dollars.
So, the rise and fall of the dollar will
have a direct impact on gold prices. The
second factor that must be considered is
that the central bank lending of gold has
increased the supply of gold (on paper).
When you magnify this by the derivatives
market, this has brought additional pressure
on gold prices. The final major external
factor that impacts gold is that unlike
most commodities, the market price does
not necessarily reflect the free market.
In the past, many governments have tried
to dilute their gold/silver coinage content.
Since they ignored the rules of prudent
financial decisions, they have been defrauded
by their creditors by hurting their own
currencies. Now, with gold prices increasing
it has become quite a political embarrassment.
Until we see the freedom of the gold market
restored, it will be very hard to reach
the “fair value” again.
|
