Gold and Inflation
Gold and gold bullion is forecast to rise as high $2000 or more an ounce “in the next leg up” by Frank Holmes of US Global Investors (his Gold and Precious Metal Fund is up 40.1% a year over the past three years).Mr Holmes says that there are several reasons for that not just one. He believes that all other commodities have gone through their inflation adjusted prices of 1980 except for Gold and Silver. So gold is more of a monetary asset, and its money around the world. Gold performs well in either inflation or deflation.
He believes that all other commodities have gone through their inflation adjusted prices of 1980 except for Gold and Silver. So gold is more of a monetary asset, and its money around the world. Gold performs well in either inflation or deflation.
Thomas Winmill of the Midas Fund, one of the top performing precious metals funds believes that gold could see $1500 in the next 12 to 18 months. The fund managers have identified 5 factors which will drive gold prices higher.
1. Declining of the dollar.2. More inflation in the future.3. Investors will seek greater safety in gold.4. Higher oil prices.5. Gold should follow other commodities.
In a March 3, 2008 article entitled “Gold Beats Financial Assets as Investors Seek Haven”. Bloomberg reported that “Gold, Silver, Platinum and Palladium may be the best – performing financial assets this year as inflation and slow growth erode the value of the world’s major currencies, bonds and stocks.” “ Gold… may gain at least 24% this year as Federal Reserve Chairman Ben S Bernake prioritises cutting interest rates over controlling consumer prices.”
The long term outlook for the dollar are lower highs and lower lows. However, for gold bullion it is just the opposite, higher highs and higher lows. Gold is in a bull market because its core fundamentals are so outstanding.
The gold price is driven by supply and demand. Each year the world’s gold mines produce only 2,500 metric tonnes of gold. The best estimates indicate that the whole planet buys 4000- 5000 tonnes of gold a year. Therefore it is very clear that demand exceeds supply by 60% to 100%annually creating a structural shortage situation.
Also banks are no longer selling enough gold to make up for global demand above the amount of gold mined each year.
Billionaire financier George Soros was starting to buy gold once more. Mr Sorso has been a familiar name in gold. In April gold was at a 10 year low when he bought 10% of Newmont Mining Corporation from Sir James Goldsmith. In May gold prices shot up to $880 an ounce in two a days. Analysts have said that the huge push in gold has been triggered by talk that Mr Soros was changing his investment mix possibly shifting into gold from the weakening bond market as signs of a strengthening economy have raised concerns over renewed inflation in the US.
The key is that during times of crisis and fear gold rises and individual governments cannot stop it. During more predictable times governments are able to maintain control and keep a lid on the price of gold. This causes gold to move in a “stair step” pattern. Historically gold bullion has been immune from inflation since gold is one of the few investments that is not simultaneously an asset and at the same time someone else’s liability
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