Sunday, April 17, 2011

Gold : Whats driving it? - Fundamental and Technical Factors

Gold has jumped up to new all time high of 1486 dollars. Why is Gold rising and what could be the factors driving it?Lets take a look at it Technically and Fundamentally.

1. Gold is an hedge against inflation.Inflation is rising globally and especially in the United States. Rise in crude oil prices is driving inflation. Inflation has lead to a rise in commodity prices and Gold is no different.

2. Gold was supposed to be the currency against which national currencies were linked.Countries went off the Gold Standard and printed their currencies without anything solid to back it. As the currencies become worthless pieces, people look towards safety and hence Gold is in demand.

3. All the National Banks have begun buying quantities of physical gold. Gold is a finite quantity available and this is driving up prices.

4. Eurozone default is becoming more and more likely. First Greece, then Ireland and now Portugal. The countries going under are getting bigger and Gold is an instrument of safety. Spain will be the next one to watch for.

5. 1 ounce of gold = 15 barrels of oil. By that logic, Gold should touch 1800 dollars.

6. Quantitative Easing - 2 comes to an end in June 2011. QE- 3 means more liquidity or collapse. Either way, it bodes well for Gold.

As long as there is uncertainty in the world, gold prices will continue to rise.In 2 years Silver went from Rs 15000 to Rs 63000 per kg and I do not see any reason why Gold prices cannot go upto Rs 60000 for 10 grams in the next 2 years.

Every portfolio must have 20 pc of Gold in it. These are uncertain times.

That was the Fundamental side of Gold.

Lakshmi has done a Technical Analysis at below link. She is one of the finest Technical Analysts, I know and her targets are usually met.

Also, have a look at my post, in June 2010 when Gold was at 1250 dollars an ounce. We are on the right track.


  1. Nishit, How do you suggest us to buy gold ? Interms of ETFs or physical. I am a small retail investor with DMAT account. Somehow I found that gold appreciation didn't convert itself into gain in ETFs. Your views ?

  2. ETF is the way to go. I started buying at Rs 1650 in Dec 09 and now its at 297. A gain of 27 pc.

  3. Investing in Gold, through ETF, offers many advantages like:
    Convience in investing
    Quality of Gold
    Low cost
    Transparent pricing of gold
    Tax efficieny and good resale value.
    So its worth to invest in Gold through ETF.
    Investing in Mutual Funds

  4. Buying physical will cost more twice selling too... and always insecure.. ETF is secure plus low investment cost.