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Volatility in Gold Prices

Many people are puzzled by the recent ups and downs in the price of gold and wonder where gold is going from here.

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Right now gold is linked to our current a�?bulla�? stock market. A bull stock market basically means that the stock market is generally rising in price. As long as stocks look attractive as an investment, large investors are pouring their money into equities and ignoring gold as an investment. This is why gold prices have gone down lately; gold isna��t quite as desirable when the stock marketa��s looking good.

But the fundamentals for gold are still bullisha��the Federal Reserve is still buying $85 billion in treasuries every month in an attempt to a�?reinflatea�? the economy. This essentially means that the federal government is trying to ignite inflation to avoid the deadly deflation that occurred in the last Great Depression of the 1930a��s. This will definitely have an impact on the price of gold!

Herea��s another way to think about it: the price of gold rose from $725/oz in 2009 to $1,950/oz in 2011, all without ANY appreciable inflation. Since it is the goal of the Federal Reserve to create inflation, where will gold head up to price-wise when this inflation certainly occurs? Remember, gold is historically viewed as a a�?safe havena�? investment to protect against instability in economies.

The price of gold has steadied now around $1,300/oz and is a bargain at this price level as the strong physical demand market is proving. Gold is becoming difficult to find and is trading with $80-$100/oz premiums over the spot price as a result.

Certainly gold will rise in a bullish manner as inflation, world-wide economic weakness, and continuing regional wars rear their disruptive heads. In the meantime, look for price volatility in gold until a major bullish factor for gold occurs; ita��s inevitable!

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