sell gold to stop the price from inflating? Because their main function is neither to trade gold nor stabilize its price. Historically, they have not been good at selling high and buying low. The possible answer? The dollar is weak and the us government has little incentive to make it stronger given the huge us trade deficit. The Yen seems unsafe given the Japanese government debt reaching 135% of GDP. The Euro is no better, given the heavy budget deficit of large economies in the block. Thus, gold has increasingly become the choice to store wealth. When the demand increases, the price rises. How far will the trend go? Don't look at Economists for the answer. They are only good at explaining past prices, not the future prices. 63. GOLD PRICE TREND Seven years ago, world gold prices peaked at $850/ounce. In 1998 the price dropped below $260. Last week the price of gold reached $400. The price in Vietnam is also up to 7.7 million VND/tael (an amount equal to 1.32 ounces). Some people predict that the price of gold will reach 8 million VND/tael, if there are no fluctuations in exchange rates. Why are prices so high? During times of inflation the explanation is easy: when everything goes up in price, so does gold. However, there was only deflation in the world at that time, so this explanation is not good. Some people believe that when dollar interest rates fall, gold producers do not want to hold money and tend to buy back the gold they sold under futures contracts, thereby pushing up prices. It is true that interest rates have fallen in recent years, but this argument does not explain the period 1995-1998, when both interest rates and gold prices went down together.
