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According to many in the investment world, the two biggest factors that affect gold prices are fear and greed. For some analysts, the current conditions suggest the fearful possibility of an asset bubble in gold investment. While this is definitely a minority opinion, it is good to understand asset bubbles and what the term means for today’s investors.

An asset bubble is a condition where the trade of a product or asset rises to a price that is above its intrinsic value. This condition is generally considered to be caused by greed and speculation which drive the prices to artificial levels, ignoring supply, demand and external factors such as economic conditions.

Here is the question to ask about gold investment; is gold being overvalued, or is its price being driven by supply, demand and other factors? The majority of people involved in the gold market see prices as directly linked to real factors and not the notion of an asset bubble.

Gold is a limited resource; there is only so much that has been mined to date and less is being found every year. At the same time, demand for gold is at an all-time high; jewelry, electronic products, gold bullion and other interests consume gold supplies every year. A basic economic principle is that when demand supersedes supply, prices rise.

There are other economic factors that are supporting rising gold investment prices. World financial troubles and weakening of national currencies also tend to drive up the prices of asset based commodities such as gold, as people search for protection against sagging wealth. In short, the rules of supply and demand and the support of underlying economic factors tend to discredit the idea of an asset bubble in gold investment.

Most analysts believe that now can be an excellent time for gold investment in things such as bullion and certified coins. These commodities have a long record of success, demonstrated demand and the potential for continued, sustained growth. For many, the present conditions don’t create fear; they represent a new opportunity for gold investment.

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Stewart Lawson

Senior Staff Writer - Gold-Investment.info