As the US government continues to pump more dollars into the economy, investor demand for gold continues to rise. Some analysts predict that gold prices could go as high as $1500 per ounce in 2010, as concerns about inflation continue to increase. For more on this, see the following article from Commodity Online.
Once upon a time India was the pace of gold and diamonds and gems. The West weaved stories about the East’s diamonds and gold where rich kings used to posses huge quantities of gold and flaunted it before others.
And, then came the plundering of India’s wealth by several forces which invaded it. And by the time India got Independence, the diamonds and gold had gone. After that there was a time when India had to pawn its possession of gold to get loans from international bodies to tide over a crisis.
That story has changed now. This week India has shown its might again to the world by buying 200 ton of IMF gold beating China in the bid.
This one action has influenced bullion market so much that the gold prices soared to an all time high and was in kissing distance from $1,100 per ounce this week.
This unimaginable rise of gold prices has given hope to investors across the world that they now expect the yellow metal to touch $1,500 per ounce in the coming months.
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According to CNNMoney.com, the Gold Rush of 2009, unlike some prior gold price spikes, does not appear to be due to worries about an imminent meltdown of the financial system. Gold rallied in early 2008, for example, just as Bear Stearns was about to collapse.
Instead, gold has rallied recently as the dollar has weakened. Gold, along with other metals, such as silver and copper, and commodities, like oil, are benefiting from inflation fears.
Investors around the world have fled the dollar due to worries that the massive amounts of money pumped into the US economy by Congress, the Treasury Department and the Federal Reserve will eventually lead to inflation, said CNNMoney.com
Gold, unlike silver, copper and many other metals, does not have that much of an industrial use. But gold has often been considered the safest of safe havens when the dollar declines. As a hard, tangible asset of value, some investors buy gold as an alternative to the dollar.
The International Monetary Fund announced on Monday that it sold a huge chunk (200 metric tons) of gold to the central bank of India. Now there is chatter that other nations may also want to bulk up on gold, a CNNMoney.com report said.
Central banks don’t appear to be the only big gold buyers. Mining companies are doing so as well.
Gold producers are going to need to close their hedge books because for every dollar that the price of gold goes up, they lose a lot of money.
This demand, coupled with more worries about inflation, is likely to lead gold significantly higher. Gold could hit $1,150 by the end of this year and $1,500 by the end of 2010.
If the economy is really in recovery mode, the Fed will eventually start raising interest rates from their current level of near zero. Once it does that, some of the inflation pressures should subside. That could take some of the air out of the gold run.
But there is also a good chance that gold could gain even more ground over the long haul even if the global economy gets back on track and the dollar strengthens again.
This article has been republished from Commodity Online. You can also view this article at Commodity Online, a commodity news and analysis site.