In Spite of High Price, Gold is still in High Demand

The nation of India is one of the largest buyers of
gold and silver in the world. It is a very important
part of the culture there, and the Indian buyers are
world renowed as being the saviest buyers in the
world. This article from the “India Times” indicates
demand is still very strong in India. This provides
strong support for the price of gold and indeed could
provide continued impetus to further price increases.

http://timesofindia.indiatimes.com/Cities/Gold_rush_on_despite_high_price/articleshow/2697502.cms

“Gold Fundamentals Indicate Rise to Continue”

“It’s a reflection of market sentiment: Gold is a
hedge against uncertainty, and right now it’s the best
bet,” said Carlos Sanchez, a precious-metals analyst
at CPM Group in New York. “None of the other
investment options look that great, and gold does.”

Still, when adjusted for inflation, gold remains well
below its all-time high. An ounce of gold at $875 in
1980 would be worth $2,115 to $2,200 today.

Gold has had a meteoric rise in the past year –
rising nearly 32 percent in 2007 — boosted by a
falling dollar, rising prices for oil and other
commodities, and increased Middle East instability.
Those trends have increased the metal’s appeal as a
haven: Gold is seen as a safe investment in times of
political and economic uncertainty around the world.

Also driving gold higher was Federal Reserve Chairman
Ben Bernanke’s pledge Thursday to cut interest rates
to boost the economy, which some fear may be sliding
toward recession amid turmoil in the housing and
credit markets.

Lower interest rates tend to depress a country’s
currency and drive investors to shift funds to hard
assets such as gold. A cheap dollar can make
commodities more attractive as an alternative
investment, and also can increase demand among foreign
buyers as their currencies gain strength.

“Concerns of a recession will keep pushing up gold
prices,” Sanchez said. “Depending upon what happens in
the economy and in the Middle East, we could see gold
testing $1,000 an ounce, maybe even this quarter.”

Hedge and pension funds, along with other long-term
investors, also flocked to gold as the U.S. mortgage
and credit crisis intensified.

“The funds are really heavily at play … The momentum
with gold is almost like mania. We keep wondering how
high it will go,” said Jon Nadler, an analyst with
Kitco Bullion Dealers in Montreal.

Investors looking to get in on the gold rush can
expect volatility for the rest of the year, said
Nadler, whose firm forecasts a trading range of $750
to $950 an ounce.

The steep rise in precious metals also will mean that
consumers in the United States — the biggest buyer of
gold after India — can expect to pay higher prices
for gold earrings, bracelets and other jewelry.

“People are going to feel that sticker shock when they
go down 5th Avenue,” Nadler said. “You’ll start seeing
the increase reflected as early as Valentine’s Day.”

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