Whither the Price of Gold?

Published: 31 July, 2012 15:47

Gold bullion priceAccording to Business Week, last quarter marked a four-year low for the price of gold in the commodity markets.

This happened amidst predictions that gold would hit a record high this year.

The price of gold has been rising for the past eleven years. Traditionally, gold represents a safe haven from economic and political uncertainty.

However, eleven years after September 11, 2001, the market for gold may be reaching saturation.

Why are gold prices down and holding?

Investors are favouring government bonds, and are once again using the American dollar as a save haven. The American dollar has reached a two-year high.

Inflation and the fear of inflation drive up the price of gold, and inflation is currently low. However, since debts are fixed monetarily, a rise in inflation could help to remedy the debt crisis. Some analysts are predicting higher levels of inflation in the coming years. A strong possibility of monetary easing in the U.S. and the euro crisis in the E.U. support that view.

Central bank meetings in US and Europe

There will be meetings of the major central banks in both the U.S. and Europe this week. They will help set the immediate direction of commodity prices for gold in the world markets. In the U.S., the Federal Open Market Committee (FOMC), meets on Tuesday, July 31. In Europe, the Central Bank and The Bank of England both meet on Thursday.

Analysts predict that if the U.S. and Europe print money as part of a monetary easing policy, then the price of gold will stay steady or rise. If they do not act, then the price of gold is predicted to continue on a downward trend.

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