Online gold trading has hit record levels this year. Gold, in terms of value, has risen 19% this year and hit a high of $ 1072/ounce on 14 October. This comes as no surprise if the US Dollar Index which measures the currency compared to those of the six main trading partners, fell to a low 14 month 1 day after gold hit its record high 2009.
What are the underlying factors for the meteoric rise of gold?
-As mentioned in the introduction of this article, is one of the main reasons for the advance of gold the rapid deterioration of the US Dollar. This deterioration in the reserve currency of the world has mainly fed by the Federal Reserve that the past two years has begun an unprecedented program of quantitative easing. The Fed along with other central banks around the world have collective approximately 11.7 trillion pumped into their economies in an attempt to combat the credit crisis. The huge sums of money that the Fed is printed while investors keep rates close to zero has seen to dump the dollar and diversify into other asset classes. One of the main beneficiaries, of course, has its gold, as many investors around the world the precious metal as an alternative currency and a hedge against currency devaluation perceive.
Inflation expectations are now at a very low level with central banks around the world currently interest at a record low level and the pumping of huge sums of money in their economies, but investors are fully aware that once the global economy recovers fully than central banks will aggressively hike interest rates in an attempt to reach the future inflation which threatens to curb record levels and difficult to contain. It is therefore another reason for the increase of gold that investors are hedging yourself against future inflation.
-The broad base commodities rally in recent months also has an impact on the price of gold. After hitting a low point of crude oil broke $ 33 a barrel earlier this year, the met by a very strong bid Show and this week above the 80 dollar per barrel level. Traditionally if oil producers deserve more money, that they tend to buy gold for diversification.
Companies that produce gold traditionally enter the futures markets to sell gold for delivery at some point in the future. This hedging behaviour by producers of gold is performed to compensate for the risk that prices could fall between now and then. However, with online gold trading at record levels this hedging mentality by producers of gold decreases. Instead, producers of gold are unwind their hedges and in order to do this they must buy gold which ultimately pushes up the price of gold even more.
Finally, gold prices continue to rise in the medium term under current market conditions and a printout of $ 1150 $ 1250/ounce is a realistic goal for the precious metal.
What are the underlying factors for the meteoric rise of gold?
-As mentioned in the introduction of this article, is one of the main reasons for the advance of gold the rapid deterioration of the US Dollar. This deterioration in the reserve currency of the world has mainly fed by the Federal Reserve that the past two years has begun an unprecedented program of quantitative easing. The Fed along with other central banks around the world have collective approximately 11.7 trillion pumped into their economies in an attempt to combat the credit crisis. The huge sums of money that the Fed is printed while investors keep rates close to zero has seen to dump the dollar and diversify into other asset classes. One of the main beneficiaries, of course, has its gold, as many investors around the world the precious metal as an alternative currency and a hedge against currency devaluation perceive.
Inflation expectations are now at a very low level with central banks around the world currently interest at a record low level and the pumping of huge sums of money in their economies, but investors are fully aware that once the global economy recovers fully than central banks will aggressively hike interest rates in an attempt to reach the future inflation which threatens to curb record levels and difficult to contain. It is therefore another reason for the increase of gold that investors are hedging yourself against future inflation.
-The broad base commodities rally in recent months also has an impact on the price of gold. After hitting a low point of crude oil broke $ 33 a barrel earlier this year, the met by a very strong bid Show and this week above the 80 dollar per barrel level. Traditionally if oil producers deserve more money, that they tend to buy gold for diversification.
Companies that produce gold traditionally enter the futures markets to sell gold for delivery at some point in the future. This hedging behaviour by producers of gold is performed to compensate for the risk that prices could fall between now and then. However, with online gold trading at record levels this hedging mentality by producers of gold decreases. Instead, producers of gold are unwind their hedges and in order to do this they must buy gold which ultimately pushes up the price of gold even more.
Finally, gold prices continue to rise in the medium term under current market conditions and a printout of $ 1150 $ 1250/ounce is a realistic goal for the precious metal.
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