Ted Kavadas'  Instablog

As Gold continues its rapid ascent, I think it is important to consider what such price action may be "telling us."

Many classify Gold's strong price action as that of an asset experiencing a "bubble" - and as such do not properly heed the fundamentals that may be driving its price action.   I have previously discussed whether Gold is in a bubble in this post.

While Gold may be advancing for many reasons, I would offer these (in no particular order) as among the top reasons for its ascent:

1. Vulnerability of the US Dollar to a substantial decline, discussed in this article.
2. Excessively low interest rates.
3. Too much "money printing" - both now and projected in the future.
4. Related to Points 1-3 above, an expectation of high future inflation.
5. Large money flows into the Gold market, which is relatively (in proportion to other asset classes) small.
6. A portent of an impending adverse economic event(s)
7. Related to point 6 above, a desire to obtain a "safe haven"

I believe that the most important issue for those holding Gold is the following, as I mentioned in the "Is Gold Experiencing A Bubble?" post mentioned above:

"Perhaps the greater question should be whether various asset classes are currently experiencing bubbles, and whether Gold is just one of a few (or many) classes in such a condition. In effect, is Gold's price strongly (positively) correlated to that of other asset classes, and if so, why?"

Disclosure: no positions in Gold