6 Reasons Why Gold Is Rising
Smart investors look to gold as a safe haven, to put their money into something that will protect them as the economy continues to flounder. There are many reasons to invest in gold, especially since Bernanke is not really suprising us with any uplifting or hopeful news with the economy.
Forbes recently compiled a list of six reasons why gold could go higher, and I thought it was worth sharing.
1. Global Demand for Gold is Up
Large amounts of gold will probably continue to be bought and most of by private investors in foreign countries (like China) who make habit of hoarding gold. Demand in China over the past decade has grown by double digits, and it’s not stopping. It is projected to rise by 10-15% again in 2011 and some foresee China overtaking India as the world’s largest gold buyer this year.
According to Reuters, “Demand in China for physical gold and gold-related investments is growing at an ‘explosive’ pace and its appetite for the yellow metal is poised to remain robust amid inflation concerns.”
2. High Inflation is Rearing Its Ugly Head
The Federal Reserve’s economic stimulus plans had them dump tons of new money into the financial system and this drastic increase typically spikes inflation because it seriously devalues the dollar. Everyone is talking about high inflation coming around the corner because of this latest stimulus program. If that happens, you can bet that investors seeking an inflation hedge will sprint to gold, thus forcing the price through the roof.
3. The Dollar Isn’t what it Used to Be
You don’t need me to tell you that the dollar has been on a cold streak. The U.S. dollar index measures the strength of the dollar against a bunch of other currencies, and in June 2010, it had reached a peak of 86 on the index. This year it has taken a 14% hit and fallen to below 74. “Investors have always viewed gold as a hedge against a falling dollar, and there’s no reason to believe they won’t this time around”
4. Stocks are Not Looking too Hot
Just as the dollar is in a slump, so are stocks. In late April they peaked at 12,811 and since then the Dow Jones Industrial Average has dropped about 6% while the S&P 500 has stumbled more than 6.5% in that same time frame. With these waining stocks, and financial gloom-and-doom economists like Nouriel Roubini, investors may start prepping for another financial crisis which means more gold to be bought.
5. Buying Gold Has Become Central Banks New Past Time
Because of the weakening U.S. dollar – which is still the reserve currency all around the world– central banks have been buying gold to limit their reliance of the U.S. And this isn’t going to stop anytime soon. Ten years ago those same banks were selling gold by the bundle, now they are buying it all back and that is a strong, bullish indication for gold.
6. How High Will Gold Go?
The signs for gold to continue to rise are all around, but like with anything within the investing market, nothing is for certain. Even though the price of gold is quite high already, many investors still think it has room to grow, for example projecting a 30% price spike by the end of 2011, meaning the “yellow metal” will eclipse the $2,000 an ounce mark. Other projections are a little less dramatic, calling for a year-end price of $1,600 an ounce which is only a 4% jump…
Whatever projections you care to believe, the consensus is this… the price of gold is rising and there are far too many reasons to believe that this trend is only going to continue.
– Mike TironeSource: Wealth Wire
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