State of the Gold Market Today

The Gold market is holding and building a base at just above $1200, says this analyst...

WE HAVE BEEN emailed by some people saying that the Gold Price should soon plunge, possibly to as low as $850 an ounce, reports Julian Phillips at GoldForecaster.com.

The gold market doesn't agree, however. Perhaps it would be appropriate to look at the main factors cited for why Gold should fall, and why other analysts say it should rise.

• First, if we are to believe the governments of Europe and the US, they have their government deficit problems "contained";
• China's statements that it is continuing to buy Eurozone bonds (and US bonds) calmed markets that feared the worst. This implies calm in currency markets from now on;
• The global recovery is holding, albeit slower than we thought;
• Gold Investment demand could dry up any time;
• Jewelry demand is not sufficient to hold prices at present high levels;
• De-hedging by Gold Mining firms has virtually stopped;
• Belief that the developed world economy will recover together with confidence, will lessen gold demand.
• Interest rates will surely rise to make currencies more attractive to long-term gold investors;

Which side convinces you?

The European austerity measures are insufficient to drop the deficits to sustainable levels, let alone eventually repay any of this new debt. The US is not taking proper action to tackle the deficit. In fact so much confidence has been lost in so many governments financial management that either nations must undergo a decade of financial austerity or turn to inflationary policies to resuscitate growth and so cheapen debt itself. If they fail in any of their measures, there is nowhere else these nations can turn to, should this rescue fail.

Such failure could lead to the break-up of the European Monetary Union and likely the fragmenting of the Euro. This seems to be the likely course of action from now on.

Gold Investment demand is strong and likely to stay that way for the foreseeable future, because confidence in the global monetary system has decayed too far. Investment demand will not slow or fall as it is led by central banks.

China's central bank is a major buyer of gold, alongside Russia, and they still have decades of buying at the present rate to reach the goals they have set for themselves. Russia, for instance, wants 10% of its reserves in gold, compared to the current 4.6%.

Jewelry demand, meantime, is on the rise, even at these prices. And with current gold supplies insufficient to satisfy this level of demand should it persist, new supplies – both from the scrap market and from new mining output – can only come when prices are much higher.

Take a look one, five and ten years ahead, taking today's factors as the way things are going and ask, what does the future hold? This should tell you whether to Buy Gold or sell it today.

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