What Market Fundamentals Can Affect The Gold Futures?
In free market economies, supply and demand is the primary enabler for price
movement. Any outside forces that affect supply and demand eventually affect prices. When you are considering a trade in the
gold market some of the basic fundamentals that you should consider are:
1. Supply
The credit crisis should continue to affect both exploration activity and potential mine expansion, especially among
marginal producers. The round of selling by hedge funds that were forced to sell gold to raise cash to fund significant redemptions
in other financial investments is tapering off.
2. Demand Retail investment
demand for gold in Q3 2008 rose 121%. The biggest surge in demand was in Switzerland, Germany, India and the US. The increased
demand coincided with a fall in gold prices and increased economic uncertainty. If Governments around the globe are successful
in jump-starting world economic growth, this should result in higher commodity prices in general and higher prices for metals,
both industrial and precious.
3. Dollar Weakness There seems to be a growing
belief in Washington that the only way to deal with both the recession and asset deflation is by creating huge amounts
of liquidity. The government is doing this by printing more money and increasing deficit spending. This should inevitably
weaken the value of the US dollar.
A weak dollar encourages U.S. investors to
turn to gold because the metal is known for holding its value. It also encourages foreign investors to buy the dollar-denominated
metal, because the cost is not as high for those with stronger currencies.
These
are just some of the basic fundamentals to keep in mind when you are considering a trade in the gold market. Therefore, before
opening up a commodity account to trade gold you should consult with a licensed commodity broker that follows the gold market
to discuss investment strategies.
