On 21st January 1980, the price of gold was 253$ per ounce. At the beginning of this year gold broke its all time high price of 850$ and the last Friday it touched 900$. Over the past year gold has rallied from 625$ to 900$ which is almost a 44% increase in price. One of the safest and best investments right now is gold. Gold, due to its properties has been used since centuries as money.
Why do I think that the gold price will continue to increase?
It’s better to look at the gold price in terms of the dollar. Consider that you bought an IPOD nano for 150$ today. Since the dollar value is decreasing, the same IPOD will cost you more 2 years from now. If the dollar fell down in value by 10%, then the IPOD is going to cost you 165$. Similarly this long term decrease in the value of the dollar will give you good investment returns in gold. Whenever the dollar goes down, the price of gold will go up.
The US dollar will continue to decrease in value for the following reasons,
1. The insurmountable trade deficit that US has accrued.
2. To avoid recession, the Fed is most likely to decrease the interest rates. Whenever the Fed decreases the interest rate what they are doing is that they are increasing the supply of dollars thereby decreasing its value. Think of it in these terms that you own 100 stocks at a price of 50 each so you have 5000 dollars. Now you split the 100 stocks so you have 200 stocks but the price of each drops to 25 dollars. This is exactly what is happening with the dollar.
