Everything You Need To Know To Sell Gold Online
How The “Fear Trade” And The “Love Trade” Is Driving Up Gold Prices
by Michael Locklear
August 21, 2012 – Back in 2005, when the price of gold was $500, Wall Street started describing the gold market as a bubble. Even as the market started to climb to lofty heights breaking previous records most reporters and commentators remained skeptical. However, market waters have seen gold prices continue to climb despite the opinions of the doubters and so-called experts. During the period from January 2010 and January 2011 there was a nearly 30% increase in gold prices.
Although gold has had a great run since 2005 it still hasn’t surpassed the performance of commodities such as aluminum, oil, copper, wheat and corn. Palladium topped the commodities market as recently as early 2011.
On the New York market today the spot price for gold was $1637 and Palladium is at $623. What a difference after only 20 months. In 2005 when experts were certain that gold prices wouldn’t sustain their rise we were in a booming economy all over the world. Little did we know what was over the horizon. Everything looked pretty rosy, although not for gold. By 2009 gold started to look a lot stronger and safer as a hedge against the imminent global actual storm.
In August of 2011 the politics in the United States started getting ugly when the fight over the debt ceiling came to a head and America’s credit rating dropped. This was good news for gold.
The demand for gold has two primary driving forces. Politics and global economies feed what is known as the” fear trade”. Constant bad news about interest rates, the ever-growing deficit and fears of increasing inflation fuel the uncertainty in all markets and especially gold
Record numbers of unemployed, the rising uneasiness among consumers and the over-the-top housing foreclosures has had the Federal Reserve on pins and needles over interest rates. They continue to keep the rates low in an effort to keep inflation at bay. The US government must keep infusing more money into the system as its spending on social support programs reach higher levels. The increased spending fuels political infighting and further concerns over when we will emerge from our current economic troubles.
Lagging global trade, business uncertainty and our bloated government spending continued to scare the country into saving more money on the consumer level and resistance to expansion among business owners.
All these fears, along with other instabilities keep the price of gold rising. There doesn’t appear to be an end in sight and some predict that the price will continue to rise for the foreseeable future.
As the economic forecasts for the people of China and India have improved their income levels have risen. When we matched their rising disposable income with their historic cultural affinity for gold we can see why they are helping to drive the demand for more gold
The second major force behind the rising gold market is the” love trade”. These people love gold in India more than just about anyone right now. Most of the gold purchased in these newly emerging economies is not for investment, but for giving as gifts on special occasions. It is the customary gift for birthdays and weddings. Religious celebrations and other special holidays also see gold being exchanged between family and loved ones.
According to the most recent reports, China has seen a significant increase in its gold imports in recent years. Some estimates say this represents a rise of almost 500% since 2002.
India has been reported to have purchased almost double their yearly totals recently. Even Russia is increasing its reserves of the shiny stuff in a central bank.
Fear and love are perhaps two of the most powerful human drives. They play a central role in almost everything we do. It is therefore not at all surprising that these emotions also play a major role in the current gold markets. Of course the rising financial fortunes of today’s emerging economies allow the demand for more luxury goods to rise. In the past gold always got a bump when the world became more fearful. However, today as life gets better for so many new consumers, love may be the prime impetus for the demand for gold.
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