In a bizarre twist, central bankers actually want the price of gold to rise because it would be an indication that attempts to stave off deflation were working. Why do we have all of this upside down thinking?
In the past year, we've seen gold go up on fears of inflation, then it rose on fears of deflation. Analysts who follow gold say that it may be entering a structural bull market. Why is this? For one thing, gold has held firm mainly due to the problems in the banking industry.
Here are some other factors supporting the gold bull. The US Federal Reserve has flooded the market with newly printed money. Other countries are following suit. Now that all of this money is printed, it may be difficult to pull it back in. This of course would lead to currency devaluations.
Some believe that the bottom in fiat currencies has begun and hard assets like gold and silver should benefit. Gold is a prime candidate for a "mania asset" once demand is financially driven.
Chart watchers say that gold could move into a parabolic fashion once the $1000.00 per ounce barrier is broken. From there the speed of the move could accelerate sharply. One precondition for a "mania" is that there must be uncertainty concerning how the asset is valued.
The long term view on gold is that remonetisation is causing investors to lose faith in fiat currencies.
An indication that gold is about to punch through to higher levels is the gold lease rate. Rising lease rates indicate that holders of gold are keeping their gold and not selling it forward under any circumstances.
Do you believe that we are entering a bull market in gold?
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Reader Comments (Page 1 of 1)
2-19-2009 @ 9:32PM
DP said...
According to Forbes an ounce of gold has historically bought 11-12 barrels of oil but now it's buying more than twice that. If he's correct then gold is going to fall or oil is going to rise or both. Gold prices seem like a bubble to me but then again the DOW at 12K seemed like a bubble to me and then it promptly went to 14K but now I'm looking pretty smart...
2-20-2009 @ 10:27AM
Dan Barnett said...
Let's not forget the 16-1 historical silver to gold price too. DP is right, gold is overvalued at the moment.
But after last year, it's clear that I am no genius.
2-20-2009 @ 12:56PM
Iridium said...
Gold holds value for rich investors but holds no value for the common people. The overvaluation of gold will be just like the overvaluation of every commodity over the past few years.
You can't buy anything with gold and you can't really hold any real private stock of the metal. Gold is just paper wealth like a mortage backed security.
The governments would love a huge bull run on gold. Then they will confiscate gold assets just like during the depression.