It is no news that gold is currently experiencing an upsurge in price movements. In fact, gold price has been in an upward trend for the past 10 years. What are the reasons for this scale in price? What are the factors actually responsible for the swing movements currently experienced in this market? Let’s look at the actual reasons forcing gold prices to go up.
Federal Reserve
The
Federal Reserve is probably the most notable reason forcing gold prices to move
in an upward trend. This institution has dome a lot in driving investors and
other interested parties towards gold than any other thing. Since they will
continue to implement quantitative easing, print money, and buy bonds, the
uptrend in gold prices will continue. Even if the Fed decide to place a halt on
quantitative easing, the impact of what has already been done will stay for a
long time. So, one can say that the debasing of the U.S. dollar and the debt
level has been the primary reason for the upsurge in gold prices.
Interest Rates
Low
interest rates is another major reason why gold prices continue to go up. This
is equally linked to the Federal Reserve as they are vested with the
responsibility of determining the interest rate. The Federal Reserve has
continued to reiterate that the interest rate will not be raised as long as the
economy is still weak and not fully recovered from the recession witnessed few
years ago. So, gold will continue to rally at a high rate if the economy does
not improve dramatically.
Economic Weakness
The
technology bubble burst brought about a recession that has not been witnessed
for decades. And recovery has been somewhat slow, to say the least. In order to
cushion this effect, the Federal debt has been increased to unsustainable
levels, but this proved not to be the solution. The economy has not yet
recovered as few jobs are created even as more graduates are entering into the
labor market.
Banks
have not yet recovered and are still very skeptical to lend. They don’t have a
strong footing and business people cannot borrow because they too cannot
justify their ability to pay back, considering the current poor growth
opportunity. This is definitely affecting the price of gold in the market.
US dollar Collapse
The
U.S dollar is increasingly losing its value. The only reason it has not been
too pronounced is the fall of the euro as well. Otherwise, the U.S dollars
would have fallen down to a considerable level. Because of this, investors are
now turning to gold as the best alternative form of currency, forcing its price
to go up.
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