By MoneyMorning.com.au
‘What’s next for gold?’
That’s what my brother wrote me recently to ask. It’s no wonder. Over the last couple of months we’ve had to sit and chew our nails as the gold price did this…
There are plenty of conflicting views bouncing around about where gold’s going to go in the online news space. Some say the Indian’s might not buy as much gold this Diwali – they traditionally splurge on the yellow metal during this festival. Others are asking whether it’s possible gold could hit $1500.
It doesn’t seem much of a stretch, given the recent volatility, does it? But what about the long term?
Well here’s the reply I gave my brother. Repeated in full here for you. If you’re a gold owner, I hope you find it useful.
“Gold has been up and down like a yoyo, with some historic moves both up and down. You’re probably wondering what the hell is going on. These really are the most amazing times in the market with some massive tidal forces fighting it out. So I don’t think gold’s short-term oscillations are over, but in the long term there is no doubt where it goes.
Have a quick look at this video from two of the best gold brains. The mainstream ostracise these sort of guys. Even though they have got it exactly right, and have been arguing gold’s case since it was just $200. It’s a great summary of what forces are at work here.
The media love to talk about gold, but the fact is that most of them don’t know anything about it. The next day they will be talking about Exxon shares, 10-year bond prices, or rising banana prices. Whatever the top story is for that day!
Most of the financial sector is equally ignorant. The reason is that for all the headlines, the gold market is TINY compared to the rest of the market. It isn’t worth their time to understand it, because it is too small. Plus it carries a stigma because it represents the failure of the modern financial sector. So listen to media and mainstream commentary with scrutiny.
Looking at the short term the price will rise on:
- Deterioration in the European banking crisis – which could get a lot worse within weeks.
- Further sovereign, council or corporate downgrades by rating agencies.
- Money printing announcement by Fed.
In the short term the price may possibly fall first because:
- The CME increased margins (how much cash gold futures traders need as a deposit) to reduce speculation. This will dampen the gold price a bit, but not for long.
- The fact it has risen so rapidly in the last few months means that lots of people are sitting on profit which always makes a price susceptible to a fall if they are tempted to make a few quick bucks.
How all this plays out day by day over the next few weeks and months is anyone’s guess. That’s up to the traders to punt on. The rest of us mortals just try and buy on the dips.”
Dr. Alex Cowie
Editor, Diggers & Drillers
P.S. I also thought you might be interested in a recent update I sent to my subscribers about the one gold stock I believe they should buy this year. To find out more about this company, click here…
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From the Archives…
If Demand is High, Why has the Price Dropped?
2011-10-21 – Kris Sayce
China’s Hard Landing is Certain
2011-10-20 – Kris Sayce
Money is Worth Nothing and Ships are Free
2011-10-19 – Kris Sayce
The Gold Bubble and China
2011-10-18 – Dr. Alex Cowie
Why You Wouldn’t be a Millionaire if Investing Was Easy
2011-10-17 – Kris Sayce
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