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After consolidating for more than six month gold is flirting with 1000 mark again. Gold technicals are strong and metal may see touching higher marks. What are reasons for such a massive move in gold ?
1.Investors believe the worst of the global recession is over and inflation is next worry.
2. There are some investors who are investing in Gold as safe harbor as they are still not convinced about global recovery.
3. Currency ..as dollar gets cheaper gold gets expensive.
I know these are difficult economic lingo to understand for common investor. Let me explain in simple language. Due to low interest rates in past year ( to fuel economy ) there is money available easily . That leads to more demand for goods and services.Business gets cheap loans hence they spend on expansion and growth, which means more construction, investing and more spending. That leads to increasing prices of commodity. Hence inflation. In common terms a 100Rs bill will not buy as much of stuff after 1 year as it can buy today.
That means your money sitting in pocket is not worth same after 1 year. ( sometime it doesn't make sense to hold cash ) To beat inflation gold is considered a safe bet. Why ?? Because gold holds its value as compared to currency. Currencies are printed by govt around the world and they can print as much currency as they want but they can not produce gold indefinitely.
Investor are rushing into gold to protect their money , hence more demand for gold . That is shooting price of gold.
Apart from investing gold is used heavily in jewelery and industry as well.In India festival season is starting soon that will boost demand for gold.
Sometime I wonder if India could be richest nation in world if all the gold is unearthed in India. After all we have been biggest consumer of gold in world .
http://www.open2.net/blogs/media/blogs/39197167_gold.jpg