Gold Price Fails to Test November 2012 High Ahead of FOMC Meeting
A high gold price does not always mean higher gold prices. The price can fall or rise in a very short time. That’s why it’s so important to know what’s going on before making any financial decisions.
There is no doubt that gold prices were up sharply over the past year. This is especially true after the Federal Reserve began a program to monetize the national debt. If you look at the past, you can see the gold price does not reflect the fundamentals of the economy. And if the trend continues, it will probably continue to rise for the next two years as well. The market has turned into a gamble with a lot of risk involved.
Inflation and unemployment are still out of control. In addition, it’s doubtful that the Federal Reserve can continue to print money indefinitely. The U.S. economy needs a healthy boost and we need one soon. But the current system is failing to deliver this support.
Some people believe gold prices are going to be a good investment because they know there’s no inflation. I’m not convinced. It’s true that gold tends to appreciate when people have money to invest. However, the money supply is so limited and inflation is such a problem. People who have money to invest do not want to hold it.
This does not apply to Treasury bond prices either. The Federal Government is still printing money, but they don’t like to pay interest on it because it costs too much. This means they don’t have a lot to give away. So it’s hard to see the value of bonds rising.
The only way to increase your money supply without raising the cost of living is to increase the central bank’s balance sheet. However, many countries have already taken this approach in an effort to stimulate the economy.
Because the central bank balance is always falling in an economy, it makes sense that they’d want to raise the cost of borrowing for the same amount of money. When they do this, they’ll have more money and can borrow more. At the same time, they’ll sell more bonds for the same amount of money.
This is what’s happening right now in the U.S.S., but it’s not clear if the central bank balance can survive this. The government must think hard about whether it can continue printing too many dollars and raising interest rates. If it cannot, then we are on the cusp of a crisis and that’s bad news for the future.
The best time to have a higher central bank balance is when the economy is growing and the economy is getting closer to its maximum potential. That’s when all the inflation has stopped. When there is a recession or something, the government will cut back on spending and the central bank balance will fall. Because of this, investors have to use their money to buy bonds or make investments in the stock market.
Since they know that they can’t increase the gold price too far enough, the next best thing is for them to look at the economic conditions. and make some projections.
Economists tend to base their predictions on the data and the state of the economy. These projections are usually called forecasts. They are not hard and fast rules. For example, the U.S. dollar index is not based on a single factor.
Many analysts believe that the Federal Reserve will eventually raise interest rates but not until they’re certain the central bank balance is not dropping. When this happens, then the gold price can rise to a new high.
This will be great news for the world because gold prices will soar because of the increased demand. The price will probably never go above the US dollar’s current level. However, it may happen before a recession occurs.