What Could Gold Do Next?
As an keen observer of the gold markets, I believe that gold prices will fall in the near to medium term. Why is this important one may ask? Well, one reason is gold is a good reflection of inflation which affect our lives and the prices of good and services rendered. It is also a reflection of the psychology and thought process the buyers of gold at the moment, whether they be the Chinese government or individuals purchasing huge quantities of gold as evidenced by the sell out demand for gold coins and bullion by gold mints from the US, Canada, South Africa and Australia.
One of the reasons I believe this that gold prices will decline quite drastically, and you may soon hear this in the news, is that from a technical point of view (technical here refers to a way of trading the markets and in this case gold) there have been many resistance points (resistance points refer to the often psychological prices/barriers that an asset may seem hard to break past i.e. if gold was trading at $900-$980 an ounce the psychological barrier would be 1000) established around the $1000 per ounce mark.
As an investor however this will not be the trend long term as the excess bailout fund starts to flood the markets. I believe at the moment this excess cash will counter the deflationary effects of the slow down due to falling prices, locked up credit from banks, etc but when the economy does start to improve relative to where it has been, you will see inflation start to pick up aided by low interest rates. As one market commentator said on ABC a few weeks ago “there is too much money floating around at the moment”. This in turn will cause the increase in gold prices for the longer term. Many including are forecasting that gold prices will hit at least 2,000 per ounce. If this were to be the case it could happen within the next 2-4 years.
How does this affect me? Well, indirectly this could mean that prices generally will start increasing making daily living a lot dearer. If you are not the bread winner of the house you may like to ask the person who buys the daily groceries and they will tell you that it now cost a lot more just to maintain your family’s standard of living. The problem is if prices rise and your yearly income does not then family budgets will be affected.
So to cap it of I see gold prices dropping at most to $650 per ounce within the short term and as the economy picks I believe you could then see a rise in gold prices. Many would say that as it picks up that money will go back into the stock market as it has done historically because when the stock market does well people tend to flock to it for its greater returns and dividends, but I think it will be different because the stock market this time will be rising due to the excess cash in the economy not due to actual growth in GDP.
The moderator/writer is not a financial adviser and does not offer financial or investment advice. Materiel published on this site is solely for informational purposes and should not be misconstrued as solicitation to buy or sell any financial products. Please seek independent financial advice that addresses your specific needs and situation.
