Blogmaster’s musings: The price of gold is too high
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Blogmaster’s comments from Wisconsin’s Northwoods
By Steve in Wisconsin
December 24, 2010
24 Dec – The price of gold is too high … I’ve dabbled in the gold market since I was teenager. As a young coin collector my interest was peaked when I inherited an 1890s U.S. gold coin from my grandfather. Although I started off collecting ‘numismatic’ gold coins (those priced on rarity and historic value, rather than weight) I soon moved on to ‘bullion’: mostly Krugerrands. I got in before gold’s meteoric rise to $900 in April 1980 — and made a very nice profit when I sold off my stash. I later repurchased the same quantity of gold after the price “corrected” and dropped way down around $300 in 1985. My point is that I have monitored the gold market for 30+ years — and I am very uncomfortable with today’s high price.
Gold is priced worldwide in U.S. dollars per ounce. Much of the current high price is due to a belief that this country’s deficit spending and runaway military escapades will result in devaluation of our currency — thus requiring more and more dollars to purchase the same ounce of gold. It’s a valid position, and years from now I can visualize the gold price higher than it is today. But my uneasiness is based on today’s price of $1,380/oz (as of yesterday’s close) and I feel that the price may be as much as 20% too high for this point in time.
In support of my premise, I received an email from a contact of mine in India. He’s the manager of a large jewelry manufacturing company. India is, of course, one of the largest consumers of gold bullion — bracelets, rings, necklaces, bangles etc. are sold primarily by weight. According to my source his factory has laid off much of its workforce; it’s pretty much shut down because gold is now priced beyond what many consumers are willing to pay. His factory is sitting on a stockpile of unsold jewelry (wholesale, which is sold to retailers — who aren’t buying because their existing inventories are not moving like they used to), which means his factory is no longer purchasing raw bullion to make more jewelry, etc.
Speculators and gold-based investment funds are largely responsible for the current high price of the commodity. However, speculators and fund managers cannot fuel a market forever — at some point they will pull back, sit on the sidelines, and wait to see what happens next. When this occurs — get ready for a price correction.
Steve in Wisconsin is a former deputy sheriff with travels in Africa, Asia and Central America. His primary blog is inteltrends.wordpress.com