Gold on Steroids - Hold Or Sell - 6 Variables to Consider

We know summer is over when gold comes back to life, but this year it looks like gold is on steroids! Have you seen whats been happening to the gold (and silver) prices in the last few days? Anyone who has analyzed the market and taken the decision to buy gold in whatever form - shares, funds, ETF's, coins, bullion must be thanking their lucky stars they made that decision. But despite the ever increasing number of ways to invest in precious metals, there are still many potential punters who don't give gold the time of day. They are nervous about its exotic reputation and see it as a risky speculation. For anybody who feels that way, think again. Gold may be the investment of the decade.
Gold remained on a downtrend for 20 years, and at that time there were not the analytical tools available for the private investor to understand when it may reverse direction. But now we all have access to every analytical tool in the investor's handbook so we can make an informed, calculated decision . Since 2001 gold has been on an upswing and has made gains in excess of 250% in just 8 years. If we had been able to access the data at that time, what would have told us it was about to reverse? Inflation, dollar value, confidence, credit, interest rates?
Now that gold has risen to its present level investors are naturally nervous it may reverse. There will be reversals and it is generally impossible to time them precisely, but for long term investors, is the trend likely to remain on the up?
Currently
1. inflation is reported to be under 1.5%,

2. interest rates are close to zero (unless you have a mortgage or a bank loan),

3. the S&P is rising at the same time as gold,

4. growth has all but ceased, and

5. the dollar is showing signs of significant weakness.

6. Added to this, confidence in the longer term economy is falling
How do these variables effect the gold price?
Gold is behaving as if spurred on by inflation (in this case increased money supply) even though we are told we are in a deflationary environment. Many financial commentators have changed their tune from buy shares for the long term to keep your eyes on every investment and be prepared to sell. In this respect gold seems to have taken over as a long term hold . Governments are more concerned about deflation and will continue to pump liquidity into the economies until inflation appears again. By that time the trend will have taken on a life of its own. You can liken the reversal to a race horse shooting out of the starter gate - unstoppable. It is possibly the fear of this sudden, uncontrollable turn of economic conditions that is driving the gold price, and will do until the fear of serious inflation subsides. Check out our articles and Gold Report
If the dollar falls, gold rises. This is generally thought to be one of the immutable laws of economics. But consider for a moment where the observer is standing. If the dollar falls against the euro, for example, and gold rises what is the effect on the euro-zone. If you were holding gold in the Euro zone the dollar value would rise, but the euro value may not be effected. On the other hand if you had been holding your gold in sterling, the value would have risen because of the fall of sterling against the dollar.
Confidence in the economy and the banking industry was decimated. The situation was only just saved by the billions pumped into the economy, but banks have still to report significantly more losses, build up their balance sheets, and buckle under stricter regulations. The media has reported an end to the crisis - do you believe this? Or is there a nagging doubt in your mind that something is not quite right. The banking industry is going through massive changes, but we don't know precisely what form these changes will take.
Interest rates will rise when inflation takes over. This is usually thought to be a signal for the price of gold to fall, though not necessarily immediately. In 1980/81 when gold rose to its previous high, bank rates were topping 15%.
Gold is rising in line with the S&P. Traditionally gold is thought to be a hedge against a market fall, but that is not how it looks right now. Could this be an indication that the market euphoria is misplaced, and gold will continue its dogged rise regardless? - There may be serious underlying weaknesses in the economy the market is choosing to ignore.
Anna P. Best was based in Singapore for many years where she developed her interest in precious metals. She has prepared a complimentary report packed with facts which you can download at Link to Gold Report. Until recently Gold has not been an area the average investor would consider, but that has changed and suddenly there are so many opportunities out there to profit from gold and silver. Anna enjoys sharing her knowledge with other enthusiasts.
2007 George Washington Presidential Dollar Coin