What Does The Future Have In Store For Gold?

This is a guest post, kindly provided by Profit Confidential.

With the commodity prices slipping down the charts, the gold price has been witness to declining values and it has not managed to hold $1,500 an ounce. It had touched $1,920 in September 2011 and since last Friday to the Monday of this week, the price of gold bullion has plummeted by nearly 13% from $1,550 an ounce to $1,350. Part of the reasons for the waning gold bullion prices could be attributed to the fact that Cyprus was expected to make payments for its bills by selling gold. Some opine that the bullish trend that gold bullion was enjoying is seeing its last.

Many investors are losing faith in gold as an investment for the future and therefore gold stocks have been suffering.  There are also apprehensions that the gold sector could experience a meltdown with the tendency of its prices continuing to slump and inch closer to the $1,200 level; it being a representation of the cash cost for gold production at a given point (Source; Cosgrave, J., “The Scary Number for Gold Investors: $1200,” CNBC, April 15, 2013). Small gold miners are especially vulnerable to this production cost, as they cannot easily withstand a critical situation of a financial crunch.

With the Fed and central banks around the world continuously pumping money into their respective national economies in order to restore some sort of semblance to them, this has contributed in a way to the rise in the stock markets. Technical analysis by experts shows that gold is moving in a contrary direction to that of the equities market and therefore the situation does not put gold investments in an optimistic light at the moment.

For those traditional investors who wish to have some exposure to the yellow metal on their investment portfolio and who consider it as a hedge against any future economic issues, especially with the crises concerning the euro zone and North Korea, having some gold is not a bad idea. For some, gold bullion continues to be in demand as its trading involves emotions both human and psychological. Also, central banks round the world tend to buy gold bullion in large quantities. Russian central banks are huge buyers of the same and they are thus appending their reserves. If the period from the year 1964 is to be considered, so far, 2012 was the year in which central banks as a whole purchased the maximum quantities of the yellow metal. America, France, Germany and Italy are the major holders of gold bullion and they surpass countries like China, Japan and India in this regards. April 2012 witnessed the sale of 20,000 ounces of gold bullion in coins by the U.S. Mint and the same sale till April in this year so far has touched the 50,500 ounces figure. (Source: United States Mint web site, last accessed April 16, 2013).

On the other hand, more and more paper money continues to be printed by central banks round the globe. Creation of $85.0 billion a month in new paper money by the Fed and its utilization for the purchase of government bonds and mortgage-backed securities has allowed inflation to creep in. In the past, gold has always climbed higher in such situations. How will it now react in the imminent future?

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