Why Is Gold So High Right Now?
What causes the surging gold prices we see? How can some commodities soar to staggeringly high prices when the fundamentals are in the negative? This year gold reached $1007 an ounce, the highest price of gold since March of 2008. This means gold has risen 12% since April.
How has this happened? It certainly hasn't been the fundamentals, which is what you would think would cause it. The demand for gold jewelry has dropped 22% since 2008 according to the World Gold Council, and the use of gold has dropped 21% in industrial processes. The only part of the gold market that has flourished was the speculation, which saw an increase of 46% earlier in the year.
Many people are attracted to this metal because it is considered to be a good hedge against inflation. However, the Labor Department listed statistics showing that the consumer price index actually fell 2.1% over the course of the year for gold. That is not inflation that is deflation. So what is this gold hedging against?
This currency is being debased because of the Federal balance sheet is enlarging in size. Gold could go either way, deflation will only further debase our currency, while inflation is never an optimal scenario either, so gold apparently benefits if either situation occurs.
Another reason for the high worth of gold is the current low United States interest rates. The London interbank dollar rate, or the way banks decide what the cost to other financial institutions for loans will be, is now down to an all-time low .0314%, which is a total of a 4.8% drop since October, 2008. Gold earns no interest, which is different than bonds, so there is some chance of making money while holding gold. However, since the dollar is essentially worthless right now, that chance is nearly zero.
So, it seems pretty apparent that financial theory is the main cause of the increase in gold costs, and the basics really don't have anything to do with it. Gold prices are currently immense, but there's no way to know what's going to occur in the future. - 23196
How has this happened? It certainly hasn't been the fundamentals, which is what you would think would cause it. The demand for gold jewelry has dropped 22% since 2008 according to the World Gold Council, and the use of gold has dropped 21% in industrial processes. The only part of the gold market that has flourished was the speculation, which saw an increase of 46% earlier in the year.
Many people are attracted to this metal because it is considered to be a good hedge against inflation. However, the Labor Department listed statistics showing that the consumer price index actually fell 2.1% over the course of the year for gold. That is not inflation that is deflation. So what is this gold hedging against?
This currency is being debased because of the Federal balance sheet is enlarging in size. Gold could go either way, deflation will only further debase our currency, while inflation is never an optimal scenario either, so gold apparently benefits if either situation occurs.
Another reason for the high worth of gold is the current low United States interest rates. The London interbank dollar rate, or the way banks decide what the cost to other financial institutions for loans will be, is now down to an all-time low .0314%, which is a total of a 4.8% drop since October, 2008. Gold earns no interest, which is different than bonds, so there is some chance of making money while holding gold. However, since the dollar is essentially worthless right now, that chance is nearly zero.
So, it seems pretty apparent that financial theory is the main cause of the increase in gold costs, and the basics really don't have anything to do with it. Gold prices are currently immense, but there's no way to know what's going to occur in the future. - 23196
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posted by X - Men @ 3:56 AM
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