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3 February 2010 – In spite of recent gains by gold, some bearish analysts continue to look for an asset bubble in gold investment. These people believe that gold prices have risen far above what the commodity is able to support, and the market will eventually make a serious adjustment that causes prices to tumble, some predicting losses of $400 or more per ounce. While nothing is guaranteed and adjustments occur, there are a number of indicators that suggest there is no bubble and news of gold’s death as an investment is premature.

Gold prices are like most other commodities; there are specific factors that drive price: demand, supply, economic pressures and future conditions. Assets that don’t have positive footing in all of these areas either won’t rise or they won’t sustain prices if they do increase; gold is not one of these assets. Gold continues to show promise in each area of this combination, meaning that it is unlikely to experience an asset bubble.

Gold demand continues to be high, not only for consumer products, but also as an investment vehicle. Hand in hand, supply is not available to meet the current demand, let alone any additional demand the may arise. 2009 production of gold broke a two year decline in production; when demand exceeds supply, prices generally climb.

The world today is full of economic pressures and no end is in sight. The US and other powers have tried to minimize the effects of the economic correction by flooding their markets with additional money; this has cause considerable damage to a number of countries. This unrest creates instability in the monetary systems and people look for alternative investments during these times; gold is the ultimate alternative investment as people are drawn to the security it provides as a tangible asset.

All of the supporting factors are in place to not only maintain gold prices, but to allow them to increase even more. Investors should look for prices to begin a possible move, especially if more national economies falter under the burden of the current situation. 

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Stewart Lawson

Senior Staff Writer - Gold-Investment.info