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Bank Bailout May Effect Gold

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Factors Effecting Bullion

Today might be a good day to reflect a bit on the many factors effecting the precious metals market. Most often we see a direct relationship between the U.S. Dollar and the price of precious metals. When the dollar gains buying power, gold looses value and when the dollar weakens gold surges. It’s that simple at the moment, but under this simple facade are a multitude of factors effecting both of these two major elements.

For instance, this Friday the Group of Seven major Central Banks will be meeting. On their agenda will certainly be some discussion about banking bailouts, interest rates, credit collapse and support of currencies. Any decisions they arrive at will have direct effects on the precious metals market, as all of these elements tend to work directly in a see-saw manner with precious metals investment. They effect the U.S. Dollar, which in turn reflects on gold investment.

Yesterday the IMF annoucement of their plans to sell off large quantites of gold effected futures prices of the metal. Meanwhile, crude oil is again on the rise, as the dollar languishes and gold has less attraction to long term investors in light of the IMF announcement. Oil and gold tend to be on one side of the see-saw, with the dollar and general economic strength on the other. But even thought gold and oil may be on the same end, each will have it’s own percieved advantages to specific investors.

You can see the jitteryness on gold in the headlines. Just a few months ago I was posting that some analysts were predicting as much as $2000 an ounce in golds future, while most expected levels of $1200 or more to be a forgone conclusion. Today a prediction of a possible level of $1100 in spot gold made a headline.

Never-the-less, gold based industries are predicting a good 2008 and expect that the bull market is not yet over, based on current and projected levels of production and demand. They may be right, but it’s hard to predict when possibiliites keep cropping up, such as the IMF gold sell-off.

As I have always said, read as much as you can find, get lot’s of opinions and facts and use them in your decision making regards investment. Precious metals and other commodities hold great possibilities as inflation hedges, but once ther bear arrives you may be holding them for a long time so be sure you consider all the influencing factors.

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One Response to Bank Bailout May Effect Gold

  1. Koichi Ito says:

    I am not worried about this crisis because Gold Price is just begining to rise again. Good to be Numismatist these days. In post World War One Germany, people who collected rare coins and stamps as well as antiques did the best against hyperinflation. Price of Rare Coins increase in value during hyperinflation that beat inflation rate as well as Silver and Gold Bullion Coins which keep up with inflation very well! As long as I can still buy silver and gold bullions as well as platinum bullions, it is very good investment!

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