Why is gold making a new high, trading at $1,118.00 per ounce?

Posted Nov 11th 2009 6:30PM by Connie Madon
Filed under: International Markets, Market Matters, Money and Finance Today, Commodities, Federal Reserve

A wise trader once told me: "It's all in the price. All the thoughts, ideas and emotions of all the traders throughout the world are in that one number."

Gold is trading at $1,118.00 per ounce. What is that number telling us? Pure and simple, the market is telling us that inflation is on the way. The Indian government just bought 200 tons of gold valued at over $7 trillion dollars. In other words they exchanged $7 trillion US dollars for the 200 tons of gold.

At the same time the December US dollar contract traded below 75.00 on a trade-weighted basis. What is that number telling us? Traders are turning in dollars for other investments, mainly stocks and commodities.

Markets are psychological and many times run on emotion rather than logic. Emotions are chasing gold higher. Investors are using gold as a hedge against the falling dollar and the possibility of coming inflation, This dynamic was set in motion by the loose money policy of the Federal Reserve. They are keeping interest rates near zero and pledging $11.2 trillion dollars to bail out the bankers and financial industry. This astronomical sum of money is tipping the psychology of the markets toward inflation and is providing the money for the rise in the stock market.

It would take a change in Federal Reserve policy to reverse the bull runs we are seeing in gold and stocks. That change is not in the cards at present. The Federal Reserve has stated that it will continue its loose money policy into the foreseeable future.

To summarize, whatever your beliefs, watch the price.

Do you believe that inflation is coming?

Tags: featured, gold, inflation, US dollar

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Reader Comments (Page 1 of 1)

11-11-2009 @ 7:11PM

william lindblad said...

Inflation is not on my radar. At least, not near term.
Months ago I stated that I felt gold is going to top around 1200 troy and it is only going there because some people feel that there are some demons in the closet - ones yet to present themselves. That may be, but one also has to consider that government (ours and many others) is now at a point of keeping a watchful eye on potential trouble. Therefore it is doubtful that any major calamities will occur, man made that is. Natural events are another story.

11-11-2009 @ 7:33PM

Jung said...

it's 7 billion. Come on, a common sense should tell you:
1. No country, let alone India has $7 trillion to spend on gold.
2. The entire world's gold reserve is far less than $7 trillion.

11-12-2009 @ 2:25AM

beachpaul said...

Deflation is our present problem. The Fed is doing everything that is possible to inflate our economy. The bubbles in commodities and the stock market, combined with no interest loans from the Fed, are allowing the banks to attempt to earn their way out of the woods they wandered into. Will it work?

11-12-2009 @ 2:56AM

katrinagem said...

Reading and writing for two hours,about the budget short:
Very interesting,how these ten states fall,fall,fall. Why? Is it because people spend too much? Or, is the government spending too much on building bridges to cross so you could fall over! Or, patching holes in the roads,so people could fall through the cracks of society! Why dosen't the government build more walls so people are more safe and secure. So familys and children are more secure! Why send men to war, to get killed. Yes, they are fighting for our country! Will there ever be peace, in this world ?
Yes, when we die!!! God, knows.....

11-12-2009 @ 2:22PM

MyKisa said...

.....with the stroke of a pen.....it can be made illegal to possess

11-12-2009 @ 7:59AM

Dan Barnett said...

Katrinagem,

Get some sleep or knock off the acid. You're tripping in public.

11-12-2009 @ 12:08PM

Benjamin Mauerberger said...

With the economy under speculative attack, investor's will feel safe in putting their money in something they know will not lose value. Gold, Silver and mining all tend to travel together, if gold goes up, the rest should follow eventually. Something to think of.