As gold is an asset that doesn’t carry any tangible returns as machinery or investment, in normal course the gold price increase should be equal to the inflation. But due to the uncertainty in the world economy and thereby bigger purchase of gold by central banks to have better returns on their reserves have further pushed the gold price higher.
The gold prices have been have been going steadily higher from 2000 and started to go volatile with 2008 recession. Some people predicted gold to touch $2000 before three to four years when it was hovering around $1000. It was felt absurd at that time since gold already had gone up by more than four times higher in span of less than 10 years. But due to the uncertainty in the world economy and instability of American dollar which is the reserve currency for the whole world, everyone started to pile up gold.
It is the central banks of different countries which started to increase their portion of gold in their reserves due to the appreciation and increasingly to the stability of gold value. Even countries like Saudi and China with abundance supply of reserves started to invest heavily on gold instead of American dollar. American dollar and the European currency Euro are the two biggest reserve currencies in the world.
Both America and Europe are in deep economic trouble and uncertainty and this has created a vacuum in finding a reserve currency with stability and better returns. The other optional currencies are British pound and Japanese Yen for the cash rich countries to hold their reserves. Again these currencies are performing almost same as the US$ and Euro. This has led the cash rich countries like China no other option or choice to invest their huge reserves. So these countries have started to put their money in gold that is considered to be the most stable investment. This is the reason why the neutral currency Swiss Franc has appreciated considerably against other currencies.
Now the main question is how far the gold is going to go up and another important question is will the gold price will stabilise at that high price. Here the answer will be quite easy. As long there is uncertainty in the growth and stability of the world economy and particularly the developed countries, the gold price is going to be on upward trend. The central banks of the cash rich countries should have other options to invest their surplus money with decent returns. Even if they don’t get decent returns they should not lose their money as it happened in investing US$ for last 5 to 6 years.
So the current situation in both US and Europe are not looking great and it is not expected to change big in the near future. In the present situation the chance of gold price retreating back is very less and there is all chance for the gold price to go further higher. It also much depends how these countries are able to manage their economies and come back from the current debt trap. As the economic and political situations are not conducive the gold price can be expected to soon surpass $2000 mark and go up northwards.
Another question will the gold price stabilise or retreat back from that high level and it again depends on the economic factors of inflation chart and demand and supply at that time. Considering the moderately high inflation and loss of currency value, it is sure that we can’t expect the gold price to retreat back to where it was 10 years ago, but as any other product has its own cycle and as such gold can be expected to come back in long future. With stable economies created and more instruments like stocks and bonds starting to give higher returns, the mad rush towards gold can be expected to go down and thereby the prices should come down.
Gold price started to increase from $272 in Oct 2001 and went up to $1900 in August 2011 and now hanging around $1700.
The gold prices have been have been going steadily higher from 2000 and started to go volatile with 2008 recession. Some people predicted gold to touch $2000 before three to four years when it was hovering around $1000. It was felt absurd at that time since gold already had gone up by more than four times higher in span of less than 10 years. But due to the uncertainty in the world economy and instability of American dollar which is the reserve currency for the whole world, everyone started to pile up gold.
It is the central banks of different countries which started to increase their portion of gold in their reserves due to the appreciation and increasingly to the stability of gold value. Even countries like Saudi and China with abundance supply of reserves started to invest heavily on gold instead of American dollar. American dollar and the European currency Euro are the two biggest reserve currencies in the world.
Both America and Europe are in deep economic trouble and uncertainty and this has created a vacuum in finding a reserve currency with stability and better returns. The other optional currencies are British pound and Japanese Yen for the cash rich countries to hold their reserves. Again these currencies are performing almost same as the US$ and Euro. This has led the cash rich countries like China no other option or choice to invest their huge reserves. So these countries have started to put their money in gold that is considered to be the most stable investment. This is the reason why the neutral currency Swiss Franc has appreciated considerably against other currencies.
Now the main question is how far the gold is going to go up and another important question is will the gold price will stabilise at that high price. Here the answer will be quite easy. As long there is uncertainty in the growth and stability of the world economy and particularly the developed countries, the gold price is going to be on upward trend. The central banks of the cash rich countries should have other options to invest their surplus money with decent returns. Even if they don’t get decent returns they should not lose their money as it happened in investing US$ for last 5 to 6 years.
So the current situation in both US and Europe are not looking great and it is not expected to change big in the near future. In the present situation the chance of gold price retreating back is very less and there is all chance for the gold price to go further higher. It also much depends how these countries are able to manage their economies and come back from the current debt trap. As the economic and political situations are not conducive the gold price can be expected to soon surpass $2000 mark and go up northwards.
Another question will the gold price stabilise or retreat back from that high level and it again depends on the economic factors of inflation chart and demand and supply at that time. Considering the moderately high inflation and loss of currency value, it is sure that we can’t expect the gold price to retreat back to where it was 10 years ago, but as any other product has its own cycle and as such gold can be expected to come back in long future. With stable economies created and more instruments like stocks and bonds starting to give higher returns, the mad rush towards gold can be expected to go down and thereby the prices should come down.
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