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Oct. 7 (Bloomberg) -- Gold’s rally to a record shows commodity investors remain concerned that the U.S. economic recovery will spur inflation even as Wall Street forecasts and government bonds suggest stable prices. I think Gold will rise despite what Wall Street or the US Government say but I suppose Bloomberg have to do their best to remain neutral and factual.
It is true that Gold has risen to a record level but that is against the dollar (USD). It peaked just above $1045 per ounce; however, it hasn't returned to a historic high against the pound (GBP). Gold peaked about £705 per ounce back in February but it is currently about £660 today. The pound-dollar exchange was more favourable for the USA back in February but the dollar has slid against the pound since then. This suggests to me that the US economy is doing worse than the UK, although we can see that the pound and the dollar has slid against all currencies. The pound has even taken a hit against the Icelandic Kronur (ISK) -- is the UK doing worse than Iceland? I certainly wonder.
From the article: Dan Greenhaus, the chief economic strategist at Miller Tabak & Co. in New York. “There’s nothing right now that says inflation will break out to all-time highs. But gold can move considerably higher from here. Should growth return, inflation will return.” I agree that Gold can move higher from here but I think inflation can still go higher. If the dollar weakens more than inflation will increase. Succinctly: prices will rise. If the dollar weakens then imports become more expensive for the American consumer -- that's inflation. When more money is 'printed' (quantitative easing) then the number of dollars in circulation has increased and so the value of a single dollar decreases. Printing money in this case is really just adding extra zeroes electronically to the Federal Reserve's bank balance -- it doesn't need to relate to the physical process of printing money. Gold on the other hand can't be printed. There might be a lot of it buried in the Earth but once you've dug it all up you can't just print some more. Without creating grand ideas of mining Gold in space, from Supernovae or whatever you like, then the available amount of Gold is finite. On top of that it must be mined and processed: that is considerably harder than adding extra zeroes to a bank balance. That's why people say Gold has real value, it takes time and effort to get more. So Gold is rare and as the dollar weakens the price of Gold will rise. If demand for Gold increases then the price will rise too. A previous article here on Esoteriic linked to an article that the Chinese government are promoting investing in Gold to its citizens -- that should lead to a rise in the value of Gold too. The prices will rise and drop daily or weekly but in the longer term I think it is going up a long way.
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