The Gold Price - Is There Still Upside?

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...One major difference between now and 1980 is that the current price rise has been slow and constant since 1999, with demand coming not only from traditional safe-haven seekers but also from other sources.

...it seems to be deja vu all over again: trouble in the Middle East and South Asia, spiralling oil prices, and fears about the US economy and the dollar are all boosting the gold price.

Yet despite these similarities, fundamental changes in the gold market mean that the two situations cannot be compared. In 1980, after surging from US$450 to US$850 in just five weeks, bullion prices collapsed to trade as low as US$300 a year later. This time round, the high price levels could be sustained a lot longer - and could go even higher.

One major difference between now and 1980 is that the current price rise has been slow and constant since 1999, with demand coming not only from traditional safe-haven seekers but also from other sources. Long-term investors now again see gold as a store of value and a hedge against persistent dollar weakness and rising inflation. Their interest is reflected, among other things, in the rapid rise of gold exchange traded funds (ETFs) which after an increase of 34% in 2007 now hold 865 tonnes of gold. The gold price is also supported by strong jewellery buying by the rising middle classes in China, India and Turkey.

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