Will gold go higher to $725 or lower to $400 an ounce? Clues comes from US, China, India and Euro zone economies
Joe Weinman
Oct. 15, 2006

Gold traders are confused. The metal is trading in a closed range with extremely high volatility. Price movements are so volatile that the option premiums have reached extreme levels. When that happens the market normally breaks through in the primary direction of the trend.

The clues to the primary trend in gold prices come from the direction of the economies in the US, China, India and Euro zone. While Japan is coming out of recession and is ready for an extended boom, the rest of the word is in a mode of super accelerated growth at this time. The Chinese and Indian economies are growing close to 10% a year. The US economy is strong on the surface and the Euro zone economies are growing and surprising many economists.

The gold pricing model is complex. This is because it has just become a world currency. The demand in China and India is actually increasing with middle-class demanding the metal for ornaments and safety beyond their own currencies. But Gold price today really represents the worthlessness of world currencies. Interestingly gold rallied with US Dollar. That shows gold now determines the valuation of world currencies.

Given that back drop, the gold price will depend on the perceived value of worldwide currencies. With no slack in demand from India and China, gold market is actually tight. But the whole pricing movement will depend on Central Bank actions of different countries. Other that Japan and some European countries, all other countries are eager to print currency to fund their budget and trade deficit. That is what will push gold prices higher. With economies booming in all countries, the Federal deficit shrinking, the countries are now less eager to print money excessively. Hat shows a possible slack in gold prices.

The gold price may continue to trend slightly higher but stay more or less where it is for the next six months. However, once the economies start showing weaknesses and the central banks resume printing excessive money, you can expect gold price to rise again.

Will gold go higher to $725 or lower to $400 an ounce? Clues comes from US, China, India and Euro zone economies
Joe Weinman
The clues to the primary trend in gold prices come from the direction of the economies in the US, China, India and Euro zone.
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