Are the ever increasing gold prices a function of reduced supply, increasing demand, or both?
Increasing fears of inflation due to global
stimulus, and the emergence of the middle class in countries like China and
India has shifted the demand curve for gold to the right. As gold prices
continue to rise, gold miners seek to increase their supply to meet the current
market demand. Gold miners are attempting to shift the supply curve to the
right, while keeping prices high and extraction cost low.
As stated in the article, gold supply isn't keeping pace with demand. This
ultimately led to a spike in the price of gold. So how high will gold prices
go? Is gold still a viable long-term investment? Will prices come crashing
down as global recession fears ease?
In my opinion, an investment in gold represents the ultimate "fool's
trade." In the investment industry this means that the price of gold can
only go higher if the next buyer is willing to pay more than the prior buyer.
Gold pays no income and has very little industrial uses. The current price of
gold isn't indicative of its true value. The metal is definitely overbought,
and I suspect that this bubble will eventually pop leaving many to wonder what
happened to their so called safe investment.