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Can Gold Continue On Its Upward Trend?

Gold has always been considered as the most highly liked investment among the many available precious metals. There are many reasons for which this investment is considered safe. Most of the investors endorse gold as a protection against inflation during the slump. The reason behind this is that gold is a reliable asset, which does not lose its value even in times of economic and financial instability, or social tumult.

It is hoped that the gold is expected to continue the upward trend of last year this year as well, affected by the fears of global government deficits, and inflation. However, the analysts have warned that the gains in gold could be sufficiently capped if the dollar managed to strengthen, or if jewellery demand failed to adjust to the higher price.

For South African gold miners, on the other hand, the gain last year, which was 25%in the gold price, was more than offset by the 27% strengthening in the rand against the dollar, which continued to exert pressure on energy prices.

Gold has been a very fascinating product lately, especially for anyone who has invested in it. You should not however consider it as only a safe investment. Despite its seemingly never-ending upward trend, gold can sometimes be rather volatile on a day-to-day basis. Only a few weeks ago, all the equity markets were looking nervous, and many traders sought the so-called safety of gold. The spike in gold prices left sellers of gold looking over their shoulders.

The higher trend in the price of gold is a phenomenon that is very much in place still and, with everyone wondering, which currency should be the weakest, rather than the strongest, gold remains a haven for frightened money.

A major problem arises in terms of gold because of its high prices, which is still on a climb, its buying and selling is now limited to investor-based and not consumer-based. If this trend continues to remain in the near future too, then ultimately the consumers and the investors both will surely experience continued instability in the market of gold.

In recent times, given the situations of economic and political uncertainty, or conflict, gold has been considered a safe haven. The price of gold is primarily influenced by investment demand, which is primarily related to the expected strength, or weakness of the US dollar. With renewed investment demand coming from gold investors for portfolio protection, it is most likely that gold will continue its long-term upward trend in the next three years. The disparity in demand and supply can result in added volatility in the gold market. An increase in gold prices will only result if the demand for gold far exceeds its supply.

The risk for the year 2010 is that the heavy level of investment demand in the year 2009 will need to be maintained for prices to keep gaining, unless other sectors such as jewellery can adjust to these high prices. If these other sectors, such as jewellery, are unable to adjust to these higher prices, the volatility may give way to added stress in the investor market.

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