Gold is Not Going to Be Cheap Anytime Soon

Imminent Sovereign default by countries like Greece and the real estate fiasco in the gulf country Dubai provided opportunities for the doomsayers to come out into the open and shout that gold would finally loose its shine. The price of gold did correct a bit as a knee jerk reaction but now gold is again flying high.

Technically gold has convincingly broken the barrier at $1105 per ounce after a brief spell of correction and is now hovering in the range of $1120. The big relief has come from the U.S. Federal Reserves, as it sees no convincing reasons to raise the rates. Low interest rate regime is likely to continue for some more time and is likely to provide a comfortable background for gold prices to break their historical highs pretty soon. Having spent billions of dollars on revival of core industries and banking sector the Federal Reserves chairman is in no mood to throw a spanner into the painfully slow economic recovery process.

The U.S Dollar would continue to be weak with mounting national debt. Twelve trillion dollars of Federal debt is feared to grow uglier in size and the U.S. Greenback would suffer further erosion in value. The green shoots that have appeared in the U.S.economy as a result of president Obama’s painstaking efforts might well be a mirage, warn the experts. The country might well be headed towards a double dip depression though not an exact replica of the great depression of the thirties. Whenever the dollar lost its charm in the past decades, investors have always moved towards Gold as the safe haven investment option.

Gold sell off by IMF is always mopped up by cash rich central banks and China continues to be a driving force behind the Bull Run in the prices of the yellow metal. The money supply has increased globally and the hunger for gold is now more than ever. The mining of gold has not kept in pace with the phenomenal rise in demand. In this milieu it would not be prudent to expect gold price to retrace to its old level

The writing is clear on the wall. More money is chasing the yellow metal now either due to panic or for pure investment purpose. With the gold rich central banks in no mood to sell their gold now and demand outstripping supply it would be foolhardy to assume gold prices would fall.

Source by Bhaskar K Sundaram

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