Despite the recent meteoric rise in the price of gold, I have not changed my stance on the precious metal.
If you consider that the total industrial demand for gold (read jewellery manufacturing) is only about 10% of the total annual output, the present price levels cannot be justified on economic fundamentals.
There is no doubt that market fears have been a factor in the price rise, but, more recently, I have become aware of another driving force: some Central Banks are buying gold in significant quantities.
Now, if I were an impulse buyer, which I am not, I would rush out and buy some bullion in order to take advantage of any further appreciation. That would leave me exposed to wild swings in price levels that would be the result of possible manipulation.
What you have to do is to ask yourself is: if, for some decades Central Banks have shunned the metal, why would they now suddenly have become buyers? The answer is that, in order to remain competitive in the international markets, some countries are switching to gold in advance of some serious currency depreciation.
If you can assess the volumes of those gold purchases, you will have found yourself some currencies that you can short.
Don't be fooled by manipulation! Happy profits!
