As I see things, the following are the principal drivers of
the Physical Gold Price:
1.
If one believes that physical gold is a ‘safe
haven monetary holding’ (or alternately stated a ‘protector of Purchasing
Power’ or ‘Insurance Policy’ against economic and societal instability), the
first ‘principal driver’ of the physical gold price in my view has to be ‘point
in time’ and prospective Macro-economic issues which include consideration of:
·
Inflation – differentiated between ‘low stable
inflation’ and higher to hyper-inflation – both country specific and world,
·
Deflation – both country specific and world,
·
Stagflation – both country specific and world,
·
Sovereign Debt Risk (e.g. Ireland, Spain,
Portugal, U.S., etc.),
·
Currency Tensions,
·
Volatility – broad market, money markets, equity
markets risk,
·
Changes in comparative Country Economic Power,
·
Concern with the prevailing Fiat Currency System,
and
·
issues around whether the U.S.$ will continue by
itself as the World Reserve Currency;
2.
‘point in time’ and prospective Inter-Country
Strive: Wars (e.g. Afghanistan,
Iraq) and Threat of Wars (e.g. Iran, North Korea);
3.
‘point in time’ and prospective Terrorism
threats and strikes;
4.
‘point in time’ and prospective Societal
Instability – from both country specific and world views as a ‘driver’ of the
physical gold price;
5.
‘point in time’ and prospective Investor
(Market) ‘point in time’ perceptions of prospective returns from conventional investments
– Real Estate, Equities, Debt, etc.;
6.
‘point in time’ and prospective Government
Intervention in the physical gold market;
7.
‘point in time’ and prospective and prospective direct
and indirect (through ETF’s and other ‘trading vehicles’) Trading Activity in
physical gold by Financial Institutions, Hedge Fund Traders, and Retail
Traders;
8.
overall, the ‘point in time’ and prospective
Supply and Demand factors related to physical gold; and,
9.
the ‘point in time’ psyche of those who buy and
sell gold.
Note that I have emphasized
‘point in time’ and ‘prospective’ for each of what I see as the ‘principal
drivers’ of the physical gold price – other than ‘psyche’ since it inherently
encompasses both. I believe anyone
who holds, or is contemplating holding, physical gold needs to monitor each
of the foregoing things on an ongoing basis as best they can – on the
theory that if you purchase any asset (be it physical gold, share equities,
land, etc.) every day that you ‘hold it’ and do not ‘sell it’ you have once
again made the decision to ‘buy it’. |