Thursday, March 29, 2012

Gold Prices to Rise for the Muppets

Oh dear, Goldman Sachs says gold prices are too low.

Their reasoning? Interest rates are low, therefore gold is too low. Is this a good analysis or are they setting up us Muppets for yet another fall?

When interest rates are high, gold tends to be low in price. Note the 1980s. Recently, the market appears to have been factoring in a rising in interest rates as the economy seemed to be growing. But it appears the market went a bit crazy on the positive side and sold too much gold in order to take advantage of higher interest rates. In other words, the recent correction and sidways movement in gold prices is not sustainable.

Goldman Sachs seems to be saying that gold needs to rise on this false dawn news about the economy as it corrected to the downside too far.

The other factor is the Federal Reserve hinting this week of more quantitative easing. This will have the effect of keeping interest rates low in the near term. An admission that the economy isn't going as well as even the Fed led us all to believe just a month ago.

So GS are predicting a gold price of around $1840 per ounce in six months. Well, as much as we distrust these guys, this forecast would seem to me to be reasonable, maybe even a little on the light side.

But who knows. We are all Muppets anyway.

Gold in New Zealand dollars: $2035.14 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.23 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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