Thursday, March 5, 2009

Is Gold the answer now?

When everyone is affraid of the market the only option available seems of course to be the Gold, the precious metal's price has been increasing in the long term, but when people get nervous about the world's economies and weak currencies, gold becomes a hot haven even in the short term.

Gold is regaining its safe-haven status as an earthquake rocks financial markets and makes standard investments seem more risky. To get a better sense of what gold is worth, it's important to understand who's buying it and why. When markets panic, all sorts of people will rush into gold. The main support for gold this year has come from a strange mix of central banks, mutual fund managers, upwardly mobile Third World residents and frightened investors.

They're worried about the world economy, they're worried about the true value of currencies (in many cases, the U.S. dollar), and, despite its apparent uselessness, they still view gold as a haven.

The increasing wealth in China and India, as well as in the Middle East, is supporting the gold price.

The biggest single buyer of gold right now is likely China's central bank. China had amassed $1.8 trillion in official currency reserves by the end of June, much of it in U.S. Treasurys. Though the U.S. dollar has regained some strength lately, the International Monetary Fund, Warren Buffett and others still see the long-term trend as down. That's a big reason China watchers think the country is converting some of its cash into gold.

Another big driver of gold's recent price gains has been another commodity pulled out of the ground: oil. Not so long ago, the world's oil-producing countries took their profits in U.S. dollars, then deemed the world's safest currency. Now that the dollar has wobbled over the year, Persian Gulf emirates rolling in profit from skyrocketing oil prices are choosing gold as their preferred store of wealth.

While it is also an attractive asset for investors and government bankers, 70% of newly mined gold still goes into jewelry. The traditional gold purchases in the third world are simple chain-link necklaces or bracelets with virtually no design so that the value of the jewelry is pretty much equivalent to the value of the gold.

Then there are investors, large and small, who have increasingly turned to gold as a place to keep a portion of their portfolios(gold will be my pick this month believe me) the rise of exchange-traded funds, which hold physical gold, have created another huge source of demand, giving even small investors an easy way to buy and sell gold. All currency crises have been caused by excessive debt The mere possibility that such a crisis can occur in the world economies makes gold valuable as a hedge. Not everyone is jumping on the gold bandwagon. The great 20th-century economist John Maynard Keynes decades ago declared gold a "barbarous relic,"
But now I think we can trust gold... So keep an eye on it and keep an eye on the best big move because is going to happen!!!

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