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Has Anything Changed in 2011?

November 23rd, 2011 No comments

At the beginning of 2011, the price of gold was $1,421 an ounce. In mid-November, the price was close to $1,787 per ounce and moving toward $1,800 an ounce. The price of gold has increased, despite a dip in September, because of the world economic situation; the factors influencing the price of gold have essentially remained the same—making it a great time to consider buying gold.

The factors:

  • Consistently strong demand for gold from India and China.
  • A weak dollar.
  • Continued uncertainty (and turmoil) in global equity markets.
  • No resolution to debt woes in the United States.
  • The Eurozone crisis.

If anything, the demand for gold from India and China has increased and the economic situations have worsened.

At the beginning of the year, certain ‘experts’ were optimistic about the economy. In front of the Senate Budget Committee, United States Federal Reserve Chairman, Ben Bernanke, said the U.S. economy was going to be “moderately stronger in 2011 than it was in 2010.” He went on to predict rampant growth between 3% and 4%. Obviously, a lot needs to happen in the month of December for Bernanke’s predictions to prove prescient.

Thankfully, the economists who help investors decide whether or not to buy gold have been more accurate in their assessment of the world economy—and the price of gold.

In December, CNBC mentioned Goldman Sachs:

“Goldman believes low U.S. interest rates will continue to underpin the rally in commodities like gold. The firm expects the precious metal futures to climb to $1,690 an ounce by the end of 2011 and continue to move higher.

The Bullion Research Desk of Commodity Online on December 22, 2010 said:

“Gold price to hover around $1500-$1600 range in 2011. Gold price will go up in 2011, driven by the fluctuations in US dollar and other currencies, dwindling productions, increasing mining problems and rising demand for jewellery and investment for the yellow metal. Gold price is definitely going to cross the $1500 mark per ounce in 2011 and it will remain in the range of $1500-$1600.”

And late last year, Bloomberg analyzed the gold price predictions of almost 30 investors, analysts, and traders. The ‘average’ prediction was $1,500 per ounce.

So…the ‘gold gurus’ were actually wrong—the price has exceeded their predictions. The factors influencing the price of gold have been more intense and are not going away as the headlines from the Eurozone crisis are proving.

So—is it a good time to buy gold? Remember…JP Morgan predicted a high of $2,500 per ounce by the end of 2011. Will they be correct? With the future of the Euro in serious doubt, gold could easily top $2,000 an ounce.

Whichever Way the Eurozone Goes – the Price of Gold Could Rise

November 16th, 2011 No comments

Have you heard the word contagion? It’s an ugly word the dictionary defines as:

“The communication of disease from one person to another by close contact.”

In European countries, the disease is debt—specifically default. Greece is having difficulty repaying its debts and Italy and Spain are extremely close to being in the same situation. The disease is spreading to all the European countries that use the Euro as their currency—which is all the major European countries excluding the United Kingdom.

And even through the currency in England, Scotland, Wales, and Northern Ireland is Pound Sterling, the U.K. is being affected by this crisis. The Prime Minister, David Cameron, has been part of the negotiations, the discussions, the summits, and all the meetings. In many cases, he’s been more vocal about the truth about the situation than others, saying recently there was now a “big question mark over the future of the Eurozone.”

Until now, the net result has been uncertainty. And if there’s one thing equity markets hate, it’s uncertainty. And when equity markets are not happy, the price of gold typically rises and it can be a good time to buy gold during uncertainty.

The chickens are coming home to roost for the leaders (and the countries) who got Europe into this mess. Angela Merkel, the German chancellor, has been saying that it’s a good time to ‘allow’ certain countries to leave the Eurozone. That’s a polite way of telling certain countries get out. In Greece and now, Italy, the Prime Minster and President, respectively, have resigned. Both countries now face a difficult choice: pursue austerity measures or get kicked out of the Euro.

With the possibility of two of the larger countries in the Eurozone leaving, the possibility exists that the Euro will collapse entirely. This could be catastrophic for large swathes of the European economy. With Europe moving closer and closer to the precipice, the price of gold has been inching upwards toward its record price of $1,923.70 an ounce on September 5 but dropped to $1,623.97 by early October. The price was back up to $1,787 per ounce on November 11. If the European crisis continues—and it looks likely to keep going—then the price of gold is likely to rise and thus now is an excellent time to buy gold.

Either the Euro will collapse completely, the ‘offending’ countries will be booted out, or the Eurozone will follow David Cameron’s suggestion and print money to get out of trouble. The latter will make the currency worth a lot less and inflation could emerge as a threat—inflation makes the price of gold increase.

About five weeks ago, a British politician said the Eurozone had six weeks to resolve the crisis. That ticking sound? It’s a bomb about to explode. And this explosion, however fierce, will likely affect the price of gold.

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