Now Is The Time To Sell You’re Gold

Whilst businesses still want to buy at current prices…………..


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Gold prices futures are at a record high of $1230 per Oz, after following a spike of growth sice 2005, I anticipate that the recent rise has been in the form of a commodities bubble, spurred by the recession, which collapse is inevitable and soon.

Why Has Gold Rocketed?

The prices of gold has often been inverse to general economic growth and asset prices as it is seen as a safe holding which will always have value in the instance of an evaporation of people’s paper wealth.

The recent 2008-10 financial crises has put evergreater pressure on prices as people flocked to secure assets in a time where asset prices, houses, stocks were falling. For example, the FTSE 100 crashed from a high of around 6000 to under 3800 at March 2009.

Fears for the solvency of banks also saw mini runs from wealth in that holding also. Whom has the majority of say in asset prices, the fund managers, knew of this and also flocked to the safe commodity. This was followed by confidence in the survived banks restored but to no avail to savers, with very low rates of interest making gold even more appealing.

The Historic Data

Gold, like any commodity, has a trend rate of growth at about the rate of inflation, causing it’s real value to remain constant on the average over time. General commodities are used in manufacturing and obviously primary products hence the prices of goods correlate with commodities.

Despite this average trend, Gold has trebled, or increased by 200%, within the past 5 years, a 24.6% annual return! The housing bubble of recent didn’t achieve these figures, the figures are only comparable to the Nasdaq 1998-2000 bubble and the Palladium bubble of around the same time.

Unsustainable because the assets which give those levels of return are of very high risk. Whether they are junk bonds, penny stocks or commercial paper in a near bankrupt firm. Gold’s returns do not correlate to risk of asset, being one of the traditionally safest assets, so much so the national money supply used to be backed by it to preserve it’s worth. As we well know, when there comes a position that an amatuer can make a very high return by simply placing their money in after seeing everyone else do so it is a bubble. Certainly, when the public gets caught up is a telltale sign of a bubble.

The last time Gold has increased this fast was around the recession of 1980, coinciding with tensions in the East, the previous bubble.

Look similar to you?

World Economic Recovery and Gold

We must consider that the UK and US are the two economies with the most widely traded assets and stock. With these two economies likely to recover this year(UK has projected 1/5 chance of double dip recession due to government austerity) their assets will seem more stable, prompting people to exit gold. This may be evermore exaggerated by a chain reaction of exits which will occur when the price eventually stutters.

Inflation Now much less fear in banks, government and the markets, there is still the issue of the fall in the value of money yet to come. Quantitative easing is yet to feed through the system and overseas cost push inflation in commodities is occurring.


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