Commodity Online It is a common belief that gold is expensive, since it has shot up from USD 400 per ounce in 2001 to USD 1,100 today, which accounts to an increase of nearly 3 times, while the S&P 500 index has risen from a recent low of 683 in 2009 to 1,160 today.
Ever since the current gold trend has begun in 2001, gold has appreciated much more strongly and consistently than S&P. The S&P was 6 times the price of gold, and today it is just about the same price, which implies that gold has become 6 times more valuable.
The current augmentation in the price of gold started from the year 2001, which is expected to continue for several coming years. It is difficult to predict how high it may go, but several economists believe that the idea of gold prices to surge to more than USD 6000 per ounce does not seem to be incredible.
Again, the markets do not usually rise to an equilibrium and stay there. They overshoot and over-correct. That means the price of gold could go way above that level, and then drop down.
It is being predicted that the next big boom and bust will be gold, silver and other commodities. The principal reason being the unprecedented levels of fiat currency creation; of both dollar and other countries’ currencies. It is plausible that the price of gold will be measured by the total amount of fiat currency that has been created.
Secondly, the US government has been running record deficits and the dollar is being printed at incredibly high levels. Most people think that this cannot be sustained, and a day of reckoning is going to occur. When this happens, the dollar will lose much of its value, and gold would increase by the same proportion.
Government spending after the worst global recession since World War II increased demand for gold last year as a hedge against inflation and a declining dollar.
On the other hand, rising inflation and falling gold prices could only increase appetite for gold as an inflationary circumvent for the long-term. However, weakness in the dollar and falling crude prices will continue to weigh on gold prices in the near-term.
