Top 10 Reasons Why Gold Must Go Higher

November 23, 2009

If you think that the price of gold has reached a top, then think again. Although a correction is likely in the near term, prices are sure to continue their bullish trend in early 2010. $1,165 is not even close to the top for all of the following reasons:

1. Silver, Platinum, and Oil Have Yet to Reach Last Year's Highs

If gold prices were presently at a top, then the price of silver, platinum, and oil would also be at record highs--but that's just not the case. Gold is alone in setting record highs while other commodities are still in rebound mode and have a long way to go.

2. Gold Prices Are Lingering at Record Highs

When gold reached record highs of $850 in January 1980, it was a quick move. The price jumped over $100 in a week and fell over $100 during the following week. Prices didn't revisit $850 for another 27 years!

Fast forward to 2009, we see that gold prices took much longer to move up to record prices and it is taking even longer for prices to correct.

3. Gold is at Record Highs in Dollar Terms Only

Gold priced in Euros, Australian Dollars, British Pounds, Swiss Francs, and Japanese Yen are not even close to highs set earlier this year as evident in the chart below:



4. EU Central Banks are Exhausting Their Gold Sales

You may recall that in the 1990's and early 2000's, EU member states were literally flooding the market with gold. This year, EU member central banks sold 73% less gold, their lowest output since 1994. Furthermore, the Swiss National Bank said it had no plans of selling any gold in the near term.

5. BRIC, Developing Countries Have Only Begun Buying Gold

China's central bank was the first to announce it's gold accumulation plans, but India's recent purchase of 200 tonnes of IMF gold was a prelude to the latest spike in gold prices. Last week, the Bank of Russia announced that it was prepared to buy any gold sold by its State Depository.

Moreover, China has been encouraging its 1.3 billion citizens to purchase silver bullion as evident in this CCTV news report:



6. Global Gold Demand is Low

According to the World Gold Council, global gold demad is much lower than last year, in spite of record prices. Peak demand occurred in the third quarter of 2008, during the height of the economic uncertainty. Globally, gold purchases are down 34% since last year.

7. Americans Still Have Negative Perception of Gold

Many Americans still recall the downtrend of the 1980's and 1990's that brought gold from $850 to $250. This has forever changed their perceptions of gold and has led to far less Americans using it as an investment. How many people do you know with gold or silver investments? Amongst them, how much or how little gold do they own. Imagine if everyone suddenly decided to buy just 1 ounce of gold--not only would the price jump dramatically, but there wouldn't be enough for everyone.

8. Investors Are Investing Less than in Previous Years

The average investor is still a bit concerned about the economy to invest in anything, let alone precious metals. Americans, especially are spending less and investing less.

9. Massive Inflation Has Just Begun

Since last year the money supply in nearly every major currency, including the Chinese Yuan, has skyrocketed--perhaps none more than the USD. With such a massive, record breaking surge in money supply, it's certain thatbig inflation is on its way.



10. The Global Economy Is on the Rebound

Like most large economies worldwide, US economic growth registered a 3.5% economic growth rate in the 3rd quarter. Even Japan and Germany, which had been amongst the hardest hit economies last year have recently turned to growth. During bull markets, currencies usually decrease in value relative to commodities.




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