NEW YORK (TheStreet ) -- Gold prices have risen 20% in 2010, closing Wednesday at $1,336.90 an ounce. Another round of quantitative easing from the Federal Reserve, global currency wars led by the "race to debase," and a weakening eurozone have triggered gold's recent surge, but those issues don't tell the whole story.
Gold prices broke to a new record high last week of $1,424 an ounce as investors bought gold as protection against the Fed's loose monetary policy, and as Robert Zoellick, president of the World Bank, floated the idea of a gold standard to solve exchange rate wars rocking currency markets.
Gold's rally was fierce and short-lived. New highs failed to attract new money and momentum traders. No new money coupled with worries that China would raise key interest rates to fight inflation slaughtered prices and dragged them down 6%.
Most analysts believe the stage is set for more volatility in gold prices. Global uncertainty after the Group of 20 failed to come to an agreement on how to halt currency manipulation, of which China and the U.S. are both accused, establishes a choppy trading environment.
Gold is also at the mercy of stocks. When equities plummet, investors are often forced to sell gold for cash, but any significant dip can trigger a wave of buying as investors purchase gold at "discount" prices resulting in a strong tug of war for prices.
Prices must also contend with speculation. Some investors buy gold as protection for their portfolios and are unlikely to participate in the day-to-day market action. Traders, however, use gold as a trade, a quick way to make money, which has been aggravated recently as they must decide whether to let their December future contracts expire or pony up the cash to roll over the contract to February 2011.
Aside from recent market jitters and technical trading, there are five other fundamental factors that contribute to gold's strong price moves.
5. Price Manipulation
Price manipulation is the most controversial theory that has circulated among gold bugs for 20 years. Some argue that gold prices have been illegally suppressed over the last two decades by central banks and governments. The Gold Anti-Trust Action Committee, or GATA, is the biggest complainant.
According to statistics from the World Gold Council, central banks reportedly have 32,000 tons of gold, with the International Monetary Fund accounting for 2,966.8 tons. Under the Washington Agreement on Gold, its members can sell a maximum of 400 tons a year, thereby restricting the amount of gold in the open marketplace.
GATA argues that central banks actually have less than 15,000 tons of gold, and that the missing gold has been secretly sold or leased into the market to prevent gold prices from rising to their actual value, which should be between $3,000 to $5,000 an ounce.
No comments:
Post a Comment