Predicting the Fate of Gold

By Stephanie Quach

The G-20 group of leading nations has decided to pump in 1 trillion in funding for the International Monetary Reserve (IMF). This may be good news to many, but no, it is not yet time to celebrate because there is one thing to worry about- the bullion market.

The IMF will be allowed to sell up to 400 tons of gold in other words, one-eighth of its gold reserves. An increased supply of gold will lead to a decrease in demand for gold, causing a decline in gold prices. This will obviously upset investors who have decided to hold on to gold for the past few months and enjoyed watching gold prices surge to over $900 per ounce. Why do investors prefer to hold on to gold instead of other forms of wealth such as stocks or currency?
The answer is obvious. History has shown that gold has always held on to its value, whether during recessions or periods of inflation. The New York Federal Reserve Bank is a good role model for all of us- they hold about 5000 tons of gold in their underground vault in Manhattan. Obviously I am not asking you to build your own vault and store gold bars in it as this would be both costly and unfeasible, but rather to keep that gold chain you were given for your birthday or that gold wedding ring on your finger. People in Asia, especially India, have traditionally held large amounts of gold in jewelry. In India, gold jewelry is given as a gift in Hindu marriages, partially to provide the bride with financial security. Wealthy investors hold on to gold in the form of gold bars and derivative contracts.

So what is going to happen to next? Nobody really knows what will happen for sure. Who knows which bank is going to go down under next? Which large company will need a government bailout? What will the price of gold be? According to my predictions, the price of gold will probably drop, just because of the sale of gold by the IMF will increase gold supply in the market, while the unwillingness of people to buy gold, even the largest consumer- India, will decrease demand, leading to an upward shift of the supply curve and downward shift of the demand curve. The result is a new equilibrium at a lower price. Experts predict that the price of gold will slump by five percent to $855 per ounce before the end of this April.

Despite this possibility, gold is still an extremely valuable store of wealth. Dollar-denominated gold has managed to remain relatively stable even during extreme financial meltdowns. This summer, oil prices rocketed, making many car drivers worried about rising gas prices that hit a peak of $3.00 a gallon. After this sudden surge in prices, oil prices fell downhill but gold prices did not follow this path. My point here is that although speculation and volatility of gold may be high, gold is still a relatively safe haven or hedge against economic crisis, such as the one we are facing now. So if you want to follow The New York Federal Reserve Bank and hold onto gold visit RegalAssets.com for some of the largest inventory of both bullion and rare gold.

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