Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Makes Record Run

Commodities / Gold and Silver 2010 Dec 13, 2010 - 02:08 PM GMT

By: OilPrice_Com

Commodities

Best Financial Markets Analysis ArticleINCIDENT: On 7 December, gold hit an all-time high above US$1,425 per ounce (London morning fix), after having risen from under $300 per ounce at the beginning of the millennium and from just over $700 per ounce only a little over two years ago (all figures in current dollars).

SIGNIFICANCE: While the recent spike in the price of gold has already been somewhat redressed, new drivers in the market suggest increasing demand for the precious metal.


BACKGROUND: The price of gold is up 27% this year in dollar terms, as worry spreads over the debasement of currency values worldwide following the US Government's decision to pump trillions of dollars into the global economy. About two-fifths of all newly produced gold is used in investment vehicles, but demand is rising not only for that reason. While a tenth of new gold production goes to industrial uses, half is consumed by the jewelry industry. Increasing numbers of middle-class consumers in what used to be called the developing world have helped to drive world demand. The Indian marriage season, for example, exerts regular annual influences on price variation.

Some mania has been stoked by another proposed way to evaluate the current gold price. If one looks its ratio to the Standard & Poor's (S&P) 500 Index of stocks on the New York Stock Exchange, then that ratio is equivalent to what it was just before the Arab oil embargo of 1973-74. It hit its lowest value in 1981 before retracing to the 1973 level in the early 1990s and then soaring. If one believes that more pain is ahead for the economy today before it finally recovers (as was the case in the mid-1970s), then for the ratio to fall to its 1981 level would imply either an eventual gold price of $7800 per ounce or an S&P level of 220 (or a combination of the two that yields the same ratio).

BOTTOM LINE: Such technical concerns can be confusing and even unhelpful when not given proper grounding. The fundamentals, however, are clear. Increasing consumer demand at the retail level in new markets is not the only fundamental factor that may drive gold prices higher over the long term. Central banks have begun to ramp up gold purchases, and relatively new investment vehicles such as exchange-traded funds (ETFs) are helping to drive prices.

Central banks outside Europe and North America have been on a gold-buying binge since mid-summer. Russia has bought 65 metric tons (all tons in this Intelligence Note are metric tons) of gold since July so as to diversify its foreign exchange reserve holdings. It now holds 775 tons, the eighth largest state holding in the world. Whereas central banks around the world have been net sellers of gold for two decades through 2008 (largely due to sales by European banks), they became net buyers in 2009. The trend has increased since then, with central banks' purchases totaling 91.5 tons in the five months from July through November this year. India has become an important net gold buyer, and China's gold imports for the first 10 months of 2010 amounted to 209 metric tons, compared with only 45 tons for the whole of 2009. This is all the more striking in view of the fact that China is the world's largest gold producer.

ETFs also contribute to rising demand for gold. With the development of ETFs (securities that track a commodity or index of basket of assets but trade like a stock on an exchange) as investment vehicles that can be bought and sold by individual investors directly online without the intervention of human brokers and at discount transaction rates, another source of demand for gold appeared in the markets. (Nor are such ETFs limited to US stock exchanges.) ETFs differ from exchange-traded notes (ETNs), which are unsecured and unsubordinated debt securities, and therefore subject to fluctuation not only from the market value of the underlying commodity but also from the credit rating of the issuer, which can be downgraded without notice. Because ETFs, by contrast, own the commodities they designate (although the ETFs' share-holders do not, even indirectly), ETFs increase demand for the commodity that they represent. The most popular gold ETF on the New York Stock Exchange, for example, happens to be the world's largest private owner of bullion.

Silver is not comparable to gold. Silver is also regarded as a precious metal, but in the markets it tends to behave more like an industrial metal, and indeed it has wide industrial uses. Lately silver's price has been three times as volatile as gold. After hitting a high over $30.50 per ounce on 7 December (its highest since the late 1970s), silver plunged to under $28.50 just two days later: a decline of 6.6% in just 48 hours. Despite the recent lockstep of the two metals' prices, the gold/silver price ratio historically has swung widely over the years. (Gold would have to reach $2,300 per ounce to be at an inflation-adjusted level equivalent to its $850 per ounce peak during the 1980s.) Nor does palladium, also considered a precious metal, behave like gold. Like silver, it too tends to behave as an industrial rather than a precious metal; and it is widely used in automobile catalytic converters.

Source: http://oilprice.com/Metals/Gold/Gold-Makes-Record-Run.html

By. GIR Analysts for OilPrice.com who provide news and analysis on oil prices, alternative energy, commodities and finance. To find out more visit www.oilprice.com

© 2010 Copyright OilPrice.com- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules