Gold At $1,000.00 Per Ounce? What Does It Mean?

Experts at a variety of commodities firms have been sharing their opinion about why the price of Gold has been surging to record levels. To explain from the best of my memory from each of the many conversations with professionals I have had, conclusively I can say that there are three recurring themes that I hear again and again.

These investment opinions, are derived from the fact that there are powerful forces driving up the price of Gold. These factors are each working in tandem to escalate the price almost daily.

The first factor is the Declining value of the U.S. Dollar on the world market, to put this simply the dollar, on average is worth one half as much today as it did 6 years ago. This reduces its purchasing power, and since gold is on the world market, as the dollar is worth less Gold appears to be priced higher.

The second factor, is that the market sentiment, and with no help from the Federal Reserve system, is that inflation is unusually high. While the CPI or Consumer Price Index suggests inflation to be contained, the cost of basic commodities like food and energy suggest otherwise. A common investment strategy, to hedge against inflation, has always been adding apx. 20%-30% of Gold as an investment in portfolios. Many professional investors are doing this.

The third most common factor, is that in lieu of the recent run up, there have been countless speculative investors looking to jump in on the profit bandwagon. Consequentially Gold has gone up nearly 400% in a few short years, investors also feel secure in Gold, but some professionals feel that in light of the recent spike Gold may be becoming a "bubble." If and when the "Gold Bubble" Pops will be entirely dependent on how fast the US economy recovers and to what extent. The current market sentiment however, has seen gold rise in value at a rate that is twice that of the declining dollar.

Should Gold continue to rise past $1,000.00 and possibly as high as $2,000.00 the U.S. Dollar had better be trading at 1/2 of what it is today. Should that not happen the next great loss on investment just may be the "Gold Bubble" guaranteed to pop shortly after Jobs return, and the Economy is strong again.

My personal opinion, and for the record I am no financial advisor, that short of a belief that the U.S. Dollar will continue its downward spiral to even greater record lows, accompanied by stagflation it has become a bet that has great profit potential against the "doom and gloom" of any future economic calamity.

The biggest concern any Gold Investors should have at the moment is the actions of the IMF (International Monetary Fund). Should the IMF continue to dump massive amounts of their Gold reserves via the worlds central banks, Gold would see an implosion and panic that could drive it back to $400 per ounce. If the IMF started doing this today, that $400 dollar price would be upon us by April or May of 2008. Just something to think about.

The IMF holds Apx 100 Billion Dollars worth of Gold, and is mired with financial problems. The IMF has been selling some gold, and as their problems precipitate further they could end up selling much more.

Buy Gold if you think our economy is "Finished." Dump your Gold if you think the U.S. Economy and Dollar is about to recover "Greater Than Before." The Graphs below give a historical account of the rising price of Gold relative to the the Dollar.

Gold
U.S. Dollar Index