MM-there is a lot of evidence that the domestic economy isn't growing all that fast. Jewelry sales are not affecting the price of gold all that much, regardless of demand. The extra demand comes from increasing world tensions, particularly in Israel, India and Pakistan, plus lack of alternative investments available to many Japanese (interest rates there still below 1%), plus European flows into gold rather than into dollars, which are seen as dropping against the Euro.
If one looks at the current value of the dollar on the basis of purchasing power parity, it may have declined about as much as had been expected earlier. That is, barring a real financial catastrophe, such as huge debt increases (possible, but hey, someone is supposed to know how to run the government), the dollar may settle to around its present value relative to the Euro. Long term, we may expect one Euro to equal $0.93 or $0.94. Currently it is at $0.92. If this is the equilibrium point, then there will be much less upward pressure on gold prices. If the Middle East conflict begins to be resolved, gold will fall further.
Maybe the gold bugs would like to see a war between India and Pakistan and more suicide bombings in Israel, but most other people have had enough of that.
Art |
