The reasons behind Gold’s (as well as Silver’s) price movements is always complex. There are a lot of factors involved.
Back on September 22, 2010, I wrote a blog post (on another site) titled “What is Gold ‘Telling Us'”? I have reprinted it below, as I think that it is important to recognize the potential factors involved. Of course, this does not speak as to whether the rapid ascent is sustainable, or ultimate price targets.
Here is the post:
As Gold continues its rapid ascent, I think it is important to consider what such price action may be “telling us.”
Many classify Gold’s strong price action as that of an asset experiencing a “bubble” – and as such do not properly heed the fundamentals that may be driving its price action. I have previously discussed whether Gold is in a bubble in this post.
While Gold may be advancing for many reasons, I would offer these (in no particular order) as among the top reasons for its ascent:
- Vulnerability of the US Dollar to a substantial decline, discussed in this article.
- Excessively low interest rates.
- Too much “money printing” – both now and projected in the future.
- Related to Points 1-3 above, an expectation of high future inflation.
- Large money flows into the Gold market, which is relatively (in proportion to other asset classes) small.
- A portent of an impending adverse economic event(s)
- Related to point 6 above, a desire to obtain a “safe haven”
I believe that the most important issue for those holding Gold is the following, as I mentioned in the “Is Gold Experiencing A Bubble?” post mentioned above:
“Perhaps the greater question should be whether various asset classes are currently experiencing bubbles, and whether Gold is just one of a few (or many) classes in such a condition. In effect, is Gold’s price strongly (positively) correlated to that of other asset classes, and if so, why?”
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1347.99 as this post is written
Gold (June Gold futures) at $1512/oz as this post is written