Gold registered new all-time highs over and over again in the past few weeks and hit a record high of $1424.30 on Tuesday as investors stepped up buying the yellow metal as an effective tool to avoid the risks of inflation and the uncertainties in the global economy.
Historically, gold has been a haven for risk-averse investors. The price of gold has gone up as both the US and European regions are going through financial uncertainty.
“Even if gold takes a big hit in the days ahead, don't think the bull market is anywhere near over. We expect gold has a still-glorious future with much higher prices likely in the next few years, “says Jeffrey Nichols, Senior Economic Advisor at Rosland Capital.
According to the London morning fix at October's end, gold’s bull market is 118 months old and prices surged almost 500 percent since 2000 and almost 1300 percent since the mid-70s.
The price of gold eased a bit during the second half of last year as the recession started easing, but it bounced back sharply driven by the financial crisis in the Euro region.
Most of the mining companies stopped hedging to protect against a sudden fall in prices as they are speculating that gold prices will continue to rise.
Without some help from fiscal policy, U.S. business conditions next year and beyond will be even more disappointing and the Fed will feel the need to print still more money, and this will trigger a gold rally again.
The latest rally was prompted by the Fed’s announcement of a second round of quantitative easing (QE2), promising to print another $600 billion in new money by mid-2011.
The launch of QE2 set the gold market afire, driving up both long-term investment and short-term speculative demand in anticipation of higher U.S. inflation and a weaker dollar abroad.
So as long as the Federal Government continues to print money in order to pay for its expenses we can expect the dollar will take a nosedive and continue its long term downward trend and gold will continue to rise.
The emerging economies central banks, including Chinese central bank, are amassing gold reserves to reduce their exposure to the weakening U.S. dollar. This will also add fuel to gold’s rally.
Gold has become an ideal hedge against growing investment dangers because of the turbulence in the global economy. So Investor confidence remained firm in gold during the recession, and this pushed it to higher levels.
Until 2004, the only way to buy gold was to buy the actual thing. But with the introduction of the Gold ETF in 2004 it is available to everyone and becomes the hot new commodity. Many large fund houses are buying gold as part of their strategies to reduce risk.