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Gold Price - Six Ways to Measure the Price of Gold

Fear and Uncertainty - fear is the emotion that will send gold to the moon. Unemployment rising over the whole of the western world makes people feel fearful and helpless. Unnecessary wars and weak leadership cause populations to agitate for change. Our lives can spin out of control, our houses can be re-possessed, our families may suffer.

It's in times, such as these, when the largest economy in the world may be crumbling, that gold shines. If the world economy recovers as governments keep insisting it will, we can all breath a great sigh of relief, but if it continues to deteriorate and our predictions on gold come true, we may have missed the chance to protect ourselves, our families, and whats left of our wealth. Holding gold is the ultimate insurance. The more political and economic mistakes our governments make, the more profligate they become with our tax revenues, and the higher unemployment rises, the more we need the security of gold to insulate our futures.

Inflation - When the gold price last peaked at $887 in 1980, inflation was averaging 14% and peaked at over 20%. Mortgages had risen in excess of 17%. Right now inflation is between 2% and 3% in the US and the UK and falling. So whats the problem, and why is the price of gold holding at over $900 an ounce?

The answer to that is fear of inflation. With the billions of newly created money sloshing around the system, inflation remains the medium to long-term concern. Currently governments are trying to turn the economies away from the feared deflation, and in so doing they are likely to over-correct and send the economies soaring off into the inflationary stratosphere.

Competitive Devaluation - Currencies are currently vying for the lowest place on the currency scale of values. Forex traders are profiting, but the traveling public doesn't know where they stand from one month to the next. As the volumes of fiat currency continue to increase, competitive devaluation will continue, with the only winner for the real money prize being gold. Currency fluctuations are likely to escalate, and we haven't seen the last of the banking shocks, so gold continues to hold its value above $900, and as the dollar continues to devalue, the gold price will continue to increase.

Supply and Demand for Gold - The economic crisis is having conflicting effects on the price of gold. Consumers can't afford to buy jewelery instead they're selling what they already have to raise cash. Tupperware-style parties to sell old jewelery are becoming increasingly popular; similar to the silver melt-down sales in 1979/80 as silver rose to a peak in excess of $50 an ounce, and millions brought out every silver teaspoon, candlestick and heirloom to sell for scrap. The urgency to sell for cash depresses the price. But conversely, fear and uncertainty are driving investors to gold which will have a positive effect on the price.

Supply and demand not only applies to the individual investor, but to governments. China and Russia are adding to their gold reserves. Some analysts believe China will sell a portion of their close to $2 trillion holding in US Treasuries to fund the purchase of gold, silver and commodities. Such a move will further weaken the dollar and drive up the gold price. Meanwhile the Chinese will have put their devaluing dollars holdings to good use. India's major buying spree usually starts in late September for the coming wedding season. India has always been by far the largest purchaser of gold bullion until last year, when demand collapsed due to high gold prices and the devaluing rupee. What will happen this year?

Seasonality - Gold is likely to float through the summer doldrums. Technical indicators favour a fall in value, which is usually the case in the summer, but it will come back to life . Take this as an opportunity to acquire gold before it resumes its likely upward trajectory in the autumn.

Since October last year gold has displayed high volatility, swinging from $1011 to $712 and is currently trading at around $930. The quest for quick profits from anticipating the short term price movements in gold is doomed to failure. Just own gold now and wait for the take-off signal.

Manipulation - There are opposing schools of thought on this subject. Some believe the price of gold is manipulated or, to some extent, controlled by the Fed and central banks. You could say that since gold has been rising for quite a while now, any gold price suppression scheme could not be working. On the other hand, GATA argues that the scheme is working by slowing gold's rise. so would gold already be much higher if the price had not been controlled by selling gold and shorting the markets? A discussion for another time.

Conclusion - The influences on the gold price are well documented and not difficult to follow. Only fear and uncertainty are difficult to measure. Gold is in a bull market even if the price falls in the next few weeks, take the opportunity to buy.

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