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Will gold keep going up?
The price of gold has been heading up again and has seen $1,400 on the London bullion market recently. Gold hit $1910 in late August.
The reason given for the price rise has been the uncertainty of the world financial recovery in the main.
I believe that further increases are likely even in the event that the world financial recovery continues to make good progress. So do some of our top investors, who are punting it to go up another $300.00 in 2011. (This is an old article, and it has since done way better than that)
More upward pressure is likely for the price of gold, driven by inflationary pressures that appear as the recovery continues to falter trapped in a currency catch 22.
Move the economy forward and we have inflation, contract it and we have another depression.
The Australian economy is a good example of an economy that although recovering strongly has needed to control interest rates by increasing the base rate as a mechanism of slowing the rapid growth and keeping a lid on inflation. It is common to see .25 increments over a few months lift the rate a long way quickly.
Although fundamentally strong, the Australian economy faces the prospect of continuing inflation. The Australian dollar is tipped to gain equity with the USD this year, but although the housing figures were bad again in America, the American economy is slowly improving and America has shown the world it still has an amazing capacity to innovate.
The Ford Motor Company have moved swiftly to concentrate on well built innovative new models that in the main are good sellers locally and in world markets.
Many other companies that were capable of squeezing themselves enough to remain viable throughout the financial crisis are returning to the market with a new approach and a lot more information on how to run a tight ship.
I will be very surprised if we see a dollar for dollar with the USA as USD investors in Australia see the longer term untidy waive of inflationary pressures being controlled bluntly with large increases in the base rate.
This base line fiddling is usually followed by too much slow down of the economy as a result of the rate affecting domestic debt especially in our housing sector.
We are on an inflationary treadmill, and some will see gold as a safe hedge against inflation.
The size of the Australian economy is around 5% of the American economy and Australian goods are becoming too expensive for export markets even at 95 cents.
The small size of the economy means that larger transactions cause bigger waves in a small bucket so to speak, and American economic factors are more important to Australia than it's own domestic economy would indicate at this time which explains why Australians know a fair bit about the American economy.
If we see gold prices begin tracking strong inflation we may see big volume buyers put a bottom in at around 1,300 after the usual short term correction downwards that usually follows a series of rises.
If more problems become apparent in Iran or elsewhere in the middle east the price could be forced up by the fear factor taking gold to another level as a currency of last resort for individuals and then bigger buyers may feel the need to enter that fear driven market.
Whichever way the world economy goes, I see gold going up again from a footing at 1,300.
Something to ponder.
Gold has beaten the USD by 15% for the last 10 years.