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Gold nearing US$1,300 an ounce.

Wednesday, September 22, 2010

Gold is currently at US$1,293.50 an ounce and silver is at US$21.05 an ounce, even higher than just a week ago when I said "I see immediate support for gold at US$1,260.00 an ounce and immediate support for silver at US$20.20 an ounce.  Gold is now challenging resistance at US$1,270.00 and if it does break this, it could go much higher."

The Fed seems ready to increase liquidity in the US economy and this could possibly cause the US$ to depreciate further. What this might translate into is greater inflationary pressure in the USA in time and I have been a staunch believer of this eventuality as informed by Dr Marc Faber and Mr. Jim Rogers.

The worst thing to invest in would be the US government bonds (treasuries) as bondholders would basically be seeing their wealth eroding away as the US$ depreciates in value.  This is precisely why the Chinese government is so concerned since they are the world's largest holder of US$ debt, after Japan. However, in the short term, they could see bond prices bumping upwards because the Fed would buy bonds to keep interest rates low in an effort to encourage borrowing by the private sector.

Could gold go much higher?  It is my believe that it would but it would not be a straight line up.  The real value of gold is closer to US$2,000 an ounce and this would take time to materialise. So, for anyone who is thinking of having some exposure to the precious metal, it is my opinion that buying on pullbacks as supports are retested would be the way to go.

Related posts:
Gold and Silver highest in the last 12 months.
Real value of gold.

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