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Q&A: What moves the gold price?
Gold reached an all-time high yesterday as world turmoil bolstered demand, but what is pushing it higher?
Markets
by Deborah Hyde on Jun 09, 2010 at 13:21
The gold price hit a record high yesterday as renewed worries about the state of the economy mean investors want to put their cash somewhere safe.
But what makes prices rise?
What caused the latest surge in the price of gold?
Gold climbed to an all-time high yesterday reaching new heights at $1252 per ounce at one point, before settling up 2.9% at $1240.
Fear about how long it may take to bring European government debt levels back down to more acceptable levels and worries about how government spending cuts may affect economic growth helped to lift the price.
Recent economic data in the US has also added to worries that the recovery in the world's largest economy may be faltering. Some have increasingly been talking about the risk that Northern America may fall back into recession.
This made investors nervous and pushed them to hunt out a safe place for their money.
Is it always economic concerns that drive gold prices?
While economic worries have been driving the precious metal over recent years there are different economic scenarios that can boost demand.
For now, most people are focussed on weak growth at the moment, but gold can also get a boost when inflation is rising.
Marcus Grubb, managing director of investment at the World Gold Council, said: ‘If you look back over time every period where US CPI was above 5% and stayed there gold is about the top performing asset classes. It beats equities and bonds.’
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4 comments so far. Why not have your say?
an elder one
Jun 09, 2010 at 19:03
It is a scarce commodity and a solid appreciable asset over time; it's nice to hold in ones' hand and feel the permanence of it, but above all it is insurance against the degradations of fiat currencies by the printing presses going full pelt.
report thisChris B (Slough UK)
Jun 09, 2010 at 20:54
Whilst I'm Bullish on Gold and Silver, it is a little disconcerting seeing the Gold price following the Dollar Index up and down in sync today. You would have thought they would be inverse to each other on the whole? Still they can disconnect completely from each other, so go figure? Other influences including price manipulation. The question is how long can the powers that be keep the price depressed when upwards pressure increases more and more as the currencies fall? Also it has been said as far as the ETFs go that there is not as much physical Gold and Silver as represented by the vehicles. It would mean that if people did demand delivery of the physical asset then prices could potentially rocket. On thing is for sure we can expect a lot of volatility on the way up and lots of big dips too. Buy on the dips. The US & UK markets are looking like toast at the moment, so a good time to keep most of your powder dry! Then eventually we'll get the usual barrage of 'How To Spot A Market Bottom' articles. About <= 8 months to go I reckon :-) Hey what do I know? Just play it cool and don't get sucked in or whip sawed. Gotta be great value and low debt or forget it.
report thisMichael Fallas
Jun 09, 2010 at 22:28
What moves the gold price - FEAR of all other forms of investment !!
When that changes gold prices drop as can be seen in the bar chart above
report thisdan cahill
Jun 10, 2010 at 09:26
Although gold has stood the test of time as a store of value, it does not produce an income so total return is probaby no more than equities over a long period.
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