Why gold is going up (Part one)

This is the first article in a series of articles on gold. This article will give you some perspective on the historical price of gold and the reason why gold is going up now. In future articles, I will discuss the current supply/demand statistics for gold, the best ways to purchase gold, why the Chinese and Indians are buying gold, and my forecast for gold well above $2000 an ounce (Hint: think oil).

London Gold Fix (PM), Quoted in Dollars

clipped from www.research.gold.org

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Larry Kudlow acts like gold near $1000 is a new thing. If Larry had been paying attention he would have noticed that gold traded at $1000 per troy ounce back in March, 2008. After that peak in gold, the price of gold proceeded to crash down to the $700 level in November, 2008. Gold is now moving up sharply again and it seems that this is disconcerting to Larry. Perhaps he should look at the current supply/demand statistics and the growing number of institutional investors that see gold as a good alternative investment in their portfolios.

Here is some background and history on gold since 1980.

Gold rallied from $135 an ounce in 1978 to $860 an ounce in 1980.
The late 70s-80s gold rush was caused by consumer fears about inflation. The monthly CPI reading reached 1.5 percent in 1980. Gold peaked along with the inflation rate.
From 1980 until late 1999 gold prices trended down.
Gold bottomed near $250 an ounce in 1999.
When gold was making its lows in 1999, most of the major Central Banks around the world announced they intended to sell-off a large fraction of their gold reserves (400 tonnes a year, 2000 tonnes total).
Central banks are still selling their gold reserves in 2009 under the most recent agreement made in 2004 (500 tonnes a year, 2500 tonnes total).
Central banks continue to sell gold and the price continues to rise.
Since the late 1980s the purchases of gold by institutional investors has been rising. This trend continues and seems to be picking up momentum.
Demand for gold rose sharply in the fourth quarter of 2008, up 27 percent to $26.7 billion (year over year, Q4-2007 versus Q4- 2008.

The current sharp increase in the price of gold can be explained by the sharp increase in demand. Much of this demand is coming from retail investors (GLD), institutional investors, and large purchases from China and India. Central banks continue to sell gold and are in the process of formulating a new plan for selling gold into the market. The fact that the market continues to take these central bank sales indicates there is good ongoing demand for physical gold (since 2000).

Next time I'll write more about,

Why gold is going up and should continue to go up.
The strong seasonal tendency in gold. Gold usually goes down from March to October and usually soars from October to March. I'll explain why.
Why the Chinese are fascinated with gold and are likely to purchase enormous amounts of gold.
Why I believe gold is going to perform much like the bull market we saw in oil during 2007-2008.
And, the best ways to invest in gold.

Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Associate Diretor and Limited Parther at Bear Stearns, CEO of IP Group, and is a mentor. He currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. The content ha been syndicated by Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.