Buying gold is where Ron Paul is holding his stance. Gold prices have grown for 11 years and a few months can’t say gold is going to fall as quantitative easing continues.
1. Market Speculation- Prices determined by many factors and one of these is market speculation. There are a number of investors who speculate on the market, taking a position without ever intending to take delivery of the gold involved. These investors speculate that the price will go up and then enter into options and future contracts. A higher market demand causes prices to increase and then the speculator sells the contract for a profit.
2. Central Banks And The IMF- The Central Banks around the globe and the International Monetary Fund both play a role. These institutions hold roughly 20% of the gold reserves in the world combined, and their activities can have an enormous impact on prices. If a Central Bank or the IMF buys or sells gold on the market this will cause price changes.
3. Hedging Activities By Investors- The high cost right now is due in part by investor hedging activities. If investors suspect that inflation or deflation will be a problem in the future, or if currency devaluation seems like a possibility, then many investors will use gold to hedge against these possibilities. This hedging will drive up the demand and also cause price increases on the market.
4. Industrial And Commercial Demand- The industrial and commercial demands compete with the investment market for this metal. As more countries start to industrialize and the demand for commercial jewelry made from gold increases then the price may go much higher in the future. A limited supply and higher demand means higher market prices.
5. National And Global Events- The cost is also affected by national and global events. If the USA enters a war or there is a national emergency then the demand and cost will both increase. Times of national emergency bring fear and uncertainty and this is also true for certain events that may occur around the world. Any event that disrupts the supply of gold or increases the demand for this metal will drive up the price as well.