"The price of gold is back at record levels. But whether it can hit
$1,500 in the next few months could depend on whether the U.S. Federal
Reserve sticks with an ultraeasy monetary policy that is pushing down
the dollar.
Right now, the Fed appears divided over the outlook for its
quantitative easing program, known to the market at QE2 and scheduled to
end on June 30, and the possibility of higher interest rates later this
year, even if U.S. unemployment remains high.
Any fresh signs that the Fed remains concerned about the U.S. economy
would boost gold, which is seen as an alternative currency and often
attracts strong interest in times of economic uncertainty and unusually
low or negative interest rates after adjusting for inflation, as is the
case now. An even stronger signal for gold could come from an extension
of the Fed's program beyond June, which for now, at least, seems likely.
But any move by the Fed to exit quantitative easing or raise interest
rates faster than analysts expect would be detrimental for gold prices,
which has come to rely on the U.S.'s super-loose policy. Prices may
also come under pressure as investors adjust to life after QE2 and react
to any signs that the U.S. economic recovery is gaining traction.
Wednesday, the gold contract for April delivery on the New York
Mercantile Exchange rose $5.90, or 0.4%, to settle at a record $1,457.70
a troy ounce, its fifth gain in the last six sessions and its second
consecutive record. The price of spot gold was up $3.20, or 0.2%, at
$1,460 an ounce in late trading.
Gold prices have blasted through a one-month forecast of $1,450 set
by UBS on March 14, up from its old forecast of $1,375. The bank had
left its three-month forecast at $1,400. The bank's analysts couldn't be
reached on Wednesday.
To be sure, it's not just up to the Fed. Gold prices have hit record
after record over the past year amid worries about rising inflation, the
financial health of several European countries and, more recently,
ongoing unrest in North Africa and the Middle East that is driving up
oil prices. So far, there are few signs that any of those worries are
abating.
Indeed, Portugal's prime minister late Wednesday said the country
would request aid from the European Union, reversing months of
insistence that the country didn't need help. A fresh sign of the
country's deteriorating finances came earlier in the day, when it paid
heavily to borrow €1 billion ($1.42 billion) in short-term debt.
The European Central Bank is widely expected on Thursday to become
the first central bank among the world's large, developed economies to
raise interest rates since the world fell into deep recession in 2008.
Rising interest rates historically have been bad news for gold, which
can't compete with the higher interest rates offered by other assets.
But some analysts say interest-rate hikes this time are being take by
some as confirmation of rising inflation and could support gold prices.
But with other central banks, from the Bank of England to Fed to the
Bank of Japan, unlikely to follow any time soon, the combination of
higher interest rates in the 17-nation euro bloc and inaction elsewhere
could keep the dollar under pressure.
Afshin Nabavi, head of trading and physical sales at European
precious metals trading house MKS Finance, pointed to the euro's gains
this week were the trigger for the latest rise in gold prices.
The market often benefits from a weaker greenback, as gold is traded
in dollars and therefore appears cheaper to other currency holders when
the dollar falls."
http://online.wsj.com/article/SB10001424052748704101604576246432959339762.html
I said the price of gold would fall under the assumption the fed and European Central Bank will raise interest rates, as is being heavily speculated. Perhaps plummet was a bad choice of words, but if interest rates go up, the price will drop. Gold always becomes more expensive in bad economic times, which explains the astronomical raise in the last 5 years. However, any signs that the economy is improving will cause the price to drop. The price of gold is about 400% higher than in 2000, and has gone up because of the decline in interest rates. Interest rates went up in 2007, correlating with the decline of gold prices in 2007/2008.
