Gold Price Could Fall On Economic Recovery
Arizona gold nugget
I worry about sell pressure on gold in an economic recovery. Other assets will become more attractive causing much of the money in gold now to flow into other assets. Gold does have scarcity power, but the massive demand now is being driven by concerns over the economy and the dollar. Gold is not seen as investment, but rather a safe haven that will devalue less than alternatives.
My reading of the situation is as follows: The asset bubbles funded by the cheap dollar (using speculative and ponzi borrowings) dried up demand for assets in the short term causing a large drop in all asset prices — defaults on loans started, financial institutions became insolvent, and confidence in the economy plummetted, causing recession. Money withdrew from the equity markets into gold and cash due to the uncertainities. Among currencies, the preferred currency then was the dollar driving up the dollar significantly. The government stepped in — they substituted the money that withdrew from participating in the markets with monetary expansion. They also made cost of borrowing near-zero. The assets promptly rallied, dollar plummetted.
Gold investments have been made using the carry trade dollar and money that moved to the sidelines trigerring the recession.
As soon as there are signs of economic recovery, the cheap dollar will go away. Investments in assets on borrowed dollar will slow down. This unwinding will remove money from gold also. In addition, move from the safe haven gold into equities and other asset classes will also happen. I am worried about this sell pressure.
gold metal detector
Gold, silver and coins are the only forms of money to survive the test of time and I believe they will still be used as a store of wealth long after America’s paper and imaginary/electronic money becomes synonymous with the German Reichsmark in the history books
Australian Nugget Specimens