Wow, the SPDR Gold Trust ETF (NYSE: GLD) is up 23% year to date. The dollar is weak and inflation may rear it's ugly head. India just bought a 200 tons of gold! Should you follow? If you consider the approximate total supply of gold is 125,000 tons. They just bought two tenths of one percent. A lot, but hardly enough to move the market.
There are some that think gold is an anti-dollar play. The correlation since the early 70s is -.27. That means they move in opposite directions about 27% of the time. That means you would be wrong 73% of the time with this relationship.
What about gold as an inflation hedge? The correlation is 10%. Even worse!
So my prediction is that gold continues up for a little while longer and maybe reaches as high as $1,200 per ounce before crashing down to where it should be, around $800 per ounce. So if you are buying it now, get ready to get out! You are nearing the crest of the wave, try not to get crushed by it.
Still not convinced? Supply and demand are the key to pricing. In order to support the current prices you need to have limited supply and a great deal of demand. Right now we have the opposite. Supply is ample and demand is low. Jewelry fabrication, which is 60-70% of the gold market demand, is at a 20 year low.
So what's driving up the prices? Speculation. Try not to get caught up in it.
Source: Jon Nader, Kitco Metals, Metals Market Analyst
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