Gold seems to be tethered to the $1400 mark. It swings below and above this mark by the whims of political, social & economic turmoil. At this time, gold shines forward on the worst of news & retracts back when the news cycle finally reports the good news, or at least not so bad news. While money is made by traders following the emotional movement of precious metals based on the good/bad news cycle, what is really keeping gold moving forward overall? Gold has a number of pressures driving it forward and as far as the eye can see will continue well into the middle of this decade.
China! For any number of reasons already mentioned in this blog the worlds largest emerging economy lusts for gold. China is covering any number of positions they hold on the Dollar, bonds, & stocks globally with gold. They also have the worlds fastest growing middle class. There mindset for savings is to hold a good portion of their hard earned wealth in physical gold. China currently is consuming 25% of global gold production. With China predicted to become the worlds largest economy by 2020 this appetite for gold continues to grow.
Ben Bernanke & The Fed’s Quantitative Easing compounded with a concerted effort to devalue the US Dollar helps to underpin the pressure on gold’s pricing. The Fed’s seeming disregard for the fact of real inflation & its effects on purchasing power of the average citizen has also brought into question the US standing as a reserve currency. This assists in making gold shine the only true safe haven currency. Unless, Bernanke makes the tough choices stopping the printing press and increasing interest rates gold will continue to plow forward.
Finally, the impending debt crisis in the EU along with other debt concerns in the US give the long-term prognosis for the West in question. What isn’t in question is the long term effects on gold. This fiscal insecurity adds to the lure of gold & other precious metals. We are most likely for the next decade looking at the new lows in rare coins and precious metals. For those thinking this is a bubble; until these forces stop or change there is no bubble. It is the New Normal.