Should the Gold Price Fall now?

The State of the Gold Market

The Gold market is holding and building a base at just above $1,200.  We have been e-mailed by some people saying that the gold price should soon plunge, possibly to as low as $850.   The gold market doesn’t agree, that’s why it’s not falling.   Perhaps it would be appropriate to look at the main factors why gold should fall and why it should rise.

Reasons why Gold should fall

1. If we are to believe the governments of Europe and the U.S. they have the government deficit problems, ‘contained’.
2. China’s statements that it is continuing to buy Eurozone Bonds [and U.S. Bonds] calmed markets that feared the worst.  This implies calm in currency markets from now on.
3. The global recovery is holding, albeit slower than we thought.
4. Investment demand could dry up any time.
5. Jewelry demand is not sufficient to hold prices at present high levels.
6. De-Hedging has virtually stopped.
7. Belief that the developed world economy will recover together with confidence, will lessen gold demand.
8. Interest rates will surely rise to make currencies more attractive to long-term gold investors.

Are you convinced?

Reasons why Gold should rise

1. The European austerity measures are insufficient to drop the deficits to sustainable levels, let alone eventually repay any of this new debt.   The U.S. is not taking proper action to tackle the deficit.  In fact so much confidence has been lost in so many governments financial management that either nations must undergo a decade of financial austerity or turn to inflationary policies to resuscitate growth and so cheapen debt itself.   If they fail in any of their measures, there is nowhere else these nations can turn to, should this rescue fail.
2. Such failure could lead to the break-up of the European Monetary Union and likely the fragmenting of the €.   This seems to be the likely course of action from now on.
3. Investment demand for gold is strong and likely to stay that way for the foreseeable future, because confidence in the global monetary system has decayed too far.   Investment demand will not slow or fall as it is led by central banks.
4. China is a major buyer of gold alongside Russia and they have decades of buying at the present rate to reach the goals they have set for themselves [Russia wants 10% of its reserves in gold].
5. Jewelry demand is on the rise, even at these prices.
6. With current gold supplies insufficient to satisfy this level of demand should it persist, new supplies can only come when prices are much higher.

Take a look one, five and ten years ahead, taking today’s factors as the way things are going and ask, what does the future hold?   This should tell you whether to buy or sell gold.

How will the structural change affect the gold price?

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