In the article Is Gold really a good Inflation Hedge? I said, Gold is actually a “crisis hedge.” So it should be performing extremely well with all the uncertainty in the markets right now.
In this article Andrew Gordon explains how gold is currently in limited supply and demand is booming due to the crisis and what is currently affecting the price. — Tim McMahon, editor
Has Gold Lost its Investment Luster?
By Andrew Gordon
Gold dropped from $915 to $859 on Friday [October 10, 2008]. That’s not supposed to happen while the market is crashing. What’s going on?
[ad#INO Quotes: Metals]It’s not that gold has lost its luster. But institutional investors were forced to sell gold on Friday to meet margin calls.
If equity and hard assets continue to lose value anywhere near the rate of last week, margin liquidation will continue. And gold could go down even more.
But make no mistake about it. With the market crashing and dozens of governments printing money like there’s no tomorrow, investors want to be in gold.
Before the sell-off on Friday, the price of gold was up more than 20 percent following Lehman’s collapse.
The demand for physical gold this month has surged to what one trader calls “unprecedented” levels. The U.S. Mint has doubled its gold-coin production but it hasn’t been enough.
Gold dealers have had to turn away customers wanting to buy coins and bars.
But it’s the physical demand (for jewelry) that ultimately decides the price of gold. Jewelry demand accounts for 60 percent of total gold demand and it’s down so far this year.
Will it pick up? The world’s biggest gold consumer is India and Diwali – the festival of lights –begins October 28th. Gold sales usually surge with the approach of this festival.
Then there’s this: Gold production today is lower than it was in 2000.
Gold is rarer than ever. The markets are going to hell. It’s gold’s time.
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Editor’s Note: For another perspective from the Elliottwave point of view see: Why Are Gold Prices Falling? Hint: It’s NOT Because Of the Dollar
How to Forecast Gold and Silver Using the Wave Principle