<p>Hello
For some time now the price of gold has been
escalating . And while there may be several
factors that contribute to the accretion the two
most important reasons are , at least according
to what I have read:
1 ) The deteriorating value of the dollar
2 ) The Middle East unrest
I was hoping someone could explain to me if
there are other significant factors at play and
how the unrest in the Middle East contributes to
the soaring gold prices .
Thanks</p>
<p>It’s just crazy right now. Japan, a major player in the world economy is down for the count right now. I think it is going to take some time before we know the true extent to that nightmare. As far as the middle east, Ummm…I’m not certain it is a major factor on gold. The only thing I could imagine is that Libya, and now Syria even, are making the markets weary and people are finding havens, so to speak, in commodities. </p>
<p>Honestly, the biggest factor is simply speculation and Quant. Easing by the Fed. If you remember, towards the end of last year they announced they were going to pump $600 Billion into the economy. I trade currencies, albiet a micro account, but I made 30% of my account that week. The weaker dollar is how the Dow has increased so much while Gold is still rising over the past month or two. I think its another example of corporate politics, just like the lower interest rates that are supposed to promote business but is weakening the dollar even more, meaning higher gold prices. But all this sounds good, now and in the next couple months oil, food prices and etc. is about to start climbing.</p>
<p>Think about it like this, everything that hurts the markets and the dollar equals higher gold prices. Just maybe not in a direct way, in a cause and effect way though…But what do I know, I just have my Associates so take what I say with a grain of salt.</p>
<p>It’s a small speculation bubble. A lot of it is driven by a joint fear propaganda campaign from the far right and their associated friends with large gold interests. Go out and actually research the people who are driving the “dollar and American economy is going to crash” campaign and you’ll see that most of them are associated with gold somehow. </p>
<p>It is a multivariable process though. Gold was likely undervalued for years so part of the rise was a natural correction towards the mean. Also, there is legitimate concerns about the strength of the American economy and solvency, so some of the fear-related rise is justified. But a large portion of the country, uneducated and easily influenced by scare tactics, has bought into the gold as currency backup plan; and at the same time some smart investors are spotting that trend and buying gold themselves, therefore driving up the price even further. It’s similar to how in the 50’s manufacturers of bomb shelters would have seen an increase in demand. In that situation, there was again some justified fear of nuclear fallout, but those fears were blown way out of proportion.</p>
<p>Gold has generally been considered a safe haven in times of inflation and political/economic instability. Mideast unrest obviously creates some concern regarding political stability and continued access to oil supplies. Rising oil prices create a commodity driven push for higher prices throughout the world economy (inflation). We also have stimulus spending around the world to recover from the lingering effects of the recession…the extra spending + quantitative easing (low interest rates) create some concern regarding future inflation (both demand based and through over expansion of the money supply).</p>
<p>The real question for Gold though is whether all of these factors have already been factored into the price of gold and whether the continued run-up in price is just risky speculation. The intrinsic value of gold based on the demand for actual consumption is much lower than the current price.</p>