Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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