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Gold: Yes or No?

If you are looking at gold prices with a mind to purchase, you see this is a good time to buy.  The price is inching downward, but is it headed down permanently?  Is gold “down for the count” or taking a breather before trending upwards again? 

It closed the week at $1092.60 per ounce, which is quite a fall from the ballpark-benchmark of $1200 we saw only a few months ago.   But if you are watching the markets and pondering the financial dealings, it would seem that there’s still room to grow.   The United States has pulled out of the recession technically, but unemployment is still at 20+year highs and most people have a general state of mind about the economy that can only be described as grim. 

The price of gold, as we all know, is tied greatly to the success of the world’s financial markets.  For decades, it has been tied to the stability of the American dollar.  The dollar hasn’t been steady for some time now because of the debt loads taken on by American households and the financial institutions that carry them.  That debt, in turn, was purchased heavily by foreign banks, many based in China and elsewhere around Asia.

What?  The debts of American consumers now are held by the Chinese?  Yes, the economies in both burgeoning China and explosively successful India are recovering nicely.  They are enjoying a boom.  And they hold the notes on U.S. banks debt. 

So there’s one source of the confusion on gold prices.   Since confidence in the U.S. dollar hasn’t quite returned, the price of gold should still be steady and high.  In real dollars, adjusted for inflation over the course of the past 30 years, gold is still relatively cheap.  But if the world economy is slowly turning, warming its heart to the bloom of the Chinese and Indian economies, the price of gold may be confusing to watch for some time to come until we all find our footing in what may be a somewhat changing world order.

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