The Basics of Soaring Gold Costs
Why is the price of gold continuing to rise? Why, if the fundamentals are low enough to be negative, are the prices of some commodities skyrocketing? Gold has actually reached $1007 an ounce, the highest it has been since March 2008. That means there has been a 12% increase since April 2008.
But what causes this to happen? Certainly not the fundamentals, as you might have guessed. According to data gathered by the World Gold Council, demand for gold jewelry is down 22% and gold use in industrial processes is down 21% from 2008. Only financial speculation flourished in today's gold market, as it saw a 46% increase earlier in the year.
Many people are attracted to this metal because it is considered to be a good hedge against inflation. However, the Labor Department listed statistics showing that the consumer price index actually fell 2.1% over the course of the year for gold. That is not inflation that is deflation. So what is this gold hedging against?
Because the Federal balance sheet is getting larger, the currency it is based on is losing it's value. Deflation will only cause our currency to further lose it's value, and inflation is not a pleasant option; it appears that either way things go, gold will benefit.
Another reason for the high worth of gold is the current low United States interest rates. The London interbank dollar rate, or the way banks decide what the cost to other financial institutions for loans will be, is now down to an all-time low .0314%, which is a total of a 4.8% drop since October, 2008. Gold earns no interest, which is different than bonds, so there is some chance of making money while holding gold. However, since the dollar is essentially worthless right now, that chance is nearly zero.
So, it seems pretty apparent that financial theory is the main cause of the increase in gold costs, and the basics really don't have anything to do with it. Gold prices are currently immense, but there's no way to know what's going to occur in the future. - 16931
But what causes this to happen? Certainly not the fundamentals, as you might have guessed. According to data gathered by the World Gold Council, demand for gold jewelry is down 22% and gold use in industrial processes is down 21% from 2008. Only financial speculation flourished in today's gold market, as it saw a 46% increase earlier in the year.
Many people are attracted to this metal because it is considered to be a good hedge against inflation. However, the Labor Department listed statistics showing that the consumer price index actually fell 2.1% over the course of the year for gold. That is not inflation that is deflation. So what is this gold hedging against?
Because the Federal balance sheet is getting larger, the currency it is based on is losing it's value. Deflation will only cause our currency to further lose it's value, and inflation is not a pleasant option; it appears that either way things go, gold will benefit.
Another reason for the high worth of gold is the current low United States interest rates. The London interbank dollar rate, or the way banks decide what the cost to other financial institutions for loans will be, is now down to an all-time low .0314%, which is a total of a 4.8% drop since October, 2008. Gold earns no interest, which is different than bonds, so there is some chance of making money while holding gold. However, since the dollar is essentially worthless right now, that chance is nearly zero.
So, it seems pretty apparent that financial theory is the main cause of the increase in gold costs, and the basics really don't have anything to do with it. Gold prices are currently immense, but there's no way to know what's going to occur in the future. - 16931
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posted by Edgar at
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