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Will gold keep going up?

Updated on October 16, 2011

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.


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    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      Thank you for your comment imperial_han.

      Like yourself, I would like real wealth to underwrite the paper.

      I agree it is unlikely to change as vested interests make money out of financial turmoil.

    • imperial_han profile image

      imperial_han 7 years ago from Malaysia

      Nice hub, Earnest.

      I basically think that we should practise gold standard like the past but modified version that can suitable with our economy systems, where money should be backed by physical precious metal such as gold, silver and other natural resources. It promote long term price stability and low inflation rate, since government are not always allow to spend more than wat they have(gold reserves something like that) And world economic will be slowly restore to more stable...

      Maybe among the reason why they dont want to restore an improvise version of gold standard is....the bunch of culprit only make money when the economy is in chaos..they can exploit and benefit the most from the government's restore economic plan and many other moral hazard..we can see so much evidence about it.example AIG in trouble, when they are bailout by massive of funds, AIG use the funds to pay their directors millions of dollars..see...this is moral hazard...

      hope to see more great stuff from you, Earnest

    • attemptedhumour profile image

      attemptedhumour 7 years ago from Australia

      Hey Ern i can't afford a chocolate bar at the moment, but with all the digging i do it's only a matter of time.

    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      Thank you for the nice comment Hello, hello

    • Hello, hello, profile image

      Hello, hello, 7 years ago from London, UK

      Thank you for your informative hub.

    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      The banks are somehow all doing fine on the stock exchange. It seems that the investors in these banks don't care as long as they make a nice dollar for themselves.

      The marketing still looks the same... easy credit!

    • agvulpes profile image

      Peter 7 years ago from Australia

      I would have thought an obvious answer would be for the government to stop the issuing of easy credit. Things like the 'interest free for 3 year' type of finance. But then the banks would have to become more responsible! We can't have that now cos the shareholders would complain about the loss of profit! Lets shed some tears for the banks.

    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      Thanks for the comment Ron. I wish our Government could find alternatives to pushing people out of their homes again, but that seems to be all they've got at this time.

      Interest rate rises.

    • Rod Marsden profile image

      Rod Marsden 7 years ago from Wollongong, NSW, Australia

      Good hub.

      Right now there are countries in Europe in a fragile financial state and it wouldn't take much to tip them over.

      Interest rates are on the rise again. The government should find another way to cool the economy rather than allow the banks to continually pick on the little guy trying to pay off his mortgage. They could compensate by raising interest rates on credit cards even higher. Maybe people would then learn to get deficit cards instead.

      I do not believe there are adequate safeguards in place in the USA to prevent another slide into financial crisis or a crash. I know for sure that in China there are no safeguards in place that will stop a crisis from happening there.

      Gold as a standard is dodgy at best but at least it will help some Australians.

      I still don't really understand why a strong Australian economy always means rises in interest rates. Surely there is a better way.

    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      Thanks for your views Paradise7.

      Australians have always had a major interest in what goes on in American economics as your economy controls ours to a large extent.

      Investors and financial advisors here have a saying. "If America gets a sniffle, we get the flu."

    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      Thank you agvulpes. The government is in the usual bind. Caught between inflationary growth and higher interest rates for housing loans and credit cards.

      Credit card interest is already at 22%

    • Paradise7 profile image

      Paradise7 7 years ago from Upstate New York

      Yes, I think gold will keep going up, for a while. It has to do with many unstable market sectors here in the US commodities markets. Gold really does seem like the best bet for commodity investors right at the present time. Good hub, Earnest. It's good to get the Australian take on things, too.

    • agvulpes profile image

      Peter 7 years ago from Australia

      I think you are right on the money here. Will Gold keep going up if the suggestion that I heard today comes true about two interest rate rises here in Australia before Christmas.

    • earnestshub profile image

      earnestshub 7 years ago from Melbourne Australia

      Thank you Denizee, you comment is appreciated.

    • profile image

      Denizee 7 years ago

      Informative, thank you. These areas remain gray in my area of expertise so it helps to be able to read such a Hub, and learn something important in news. Thank you, very good job.