After the spectacular fall of gold and silver prices, the question now is: will gold price increase?
The current gold price of $1625 is way below $1900, which was the gold price of just a couple of weeks ago.
In short, the answer is that gold price will increase, but the question is when.
Part of the reason for gold investment is the high inflation rate.
When inflation rate is high, and interest rate is low, people need to park their money in an asset that can retain value.
That is the reason for the confidence in precious metal investment.
The high inflation is still affecting people in different parts of the world.
Another factor for the confidence in precious metals is the declining value of US dollar.
In recent weeks, the US dollar has appreciated against major currencies of the world. Part of the reason is due to the Euro fear.
The forex traders sell off Euro, and buy US dollar.
The problem is that the rise in US dollar is not sustainable, since the high employment rate in US is not going to end soon.
US government can start to print money again in a bid to stop the currency from appreciating.
When that happens, the price of gold will definitely increase.
The problem is again: when?
A low gold price and a strong US dollar obviously do not help the US government to shrink the value of its debt.
It is a matter of time for the government to look for the easy way out by printing money.
The unknown timing factor is the reason why investors are not buying or selling gold right now.
If they buy now, they are afraid that gold will fall further. The sentiment of the market seems to separate investment from logic. The market is looking for a cue from the large funds and governments.
The current gold and silver market is stagnant.
For those with cash on hand, it is time to start buying. But bear in mind that the price of gold and silver can go either way, so the best course is to use dollar cost averaging method.
If the price goes up, buy a bit later. If the price goes down, buy more at lower price.
The only certainty is that gold price will increase.
Sunday, October 2, 2011
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I invest in stock, debt and property but I just can't bring myself to touch gold. I just don't understand it as an asset class. It seems to store value just because we say it does and as such just seems like to represent the psychological state of investors more than anything else. I guess we'll see what happens soon with US debt and the eurozone crisis. When that's done, we can look forward to real estate market in China crashing too. Oh, who am I kidding? Gold will pull back a bit while investors take a breather from all the stress. When all these finance problems properly see the light of day, investors will flock back to gold causing a new rally. Or maybe not. I'm not an economist...and those guys always get it wrong anyway :)
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