As we all know that gold prices are fluctuating widely over the last few years, and a wide increase in the bullion rates has been recorded. According to economists and forecasters, there are different reasons of this widespread increase in gold prices. Most of them say that this is because of the relationship between crude oil and gold. And because of this correlation between prices of oil and gold, the gold prices are constantly changing but its not the only reason these days, other ingredients are also helping these price shifts to occur.
▪ Gold and Oil correlation:
According to many experts, Gold, oil and US dollar are correlated with each other. There are three theories given in this regard. ➢ First says that when oil price rises, investors look for other sources to invest such as gold which intern increases gold price, so oil indirectly affects gold prices. ➢ Second one says that expensive oil reduces the profit margins of gold mine companies because oil is used for extraction of gold, which increases gold prices. ➢ According to third one, as gold and oil both are traded in US dollars so their price depends on the strength of the currency. Therefore, we can say that both commodities show similar trend in prices because they are driven by the inflation rate in the economy.
But this correlation has not proved to be right for short time period, as is reliable for measuring data for longer periods such as from 1964 to 1995, this correlation proved to be very accurate with a positive reading of 0.877,but from 1995 to 2000, it almost vanished showing negative reading of 0.133.The same phenomenon is occurring these days, as oil is fluctuating and came to 86 dollars/ barrel from the peak of 103 dollars, but contrary to it, a constant rise in gold is recorded from 1,500 dollars/ounce to 1,687 dollars and now it’s on 1651 dollars, so we can say that gold and oil are not always interrelated but it’s the inflation rate in the economy which is always driving both of them up and down. There are also other factors affecting gold prices and which become major reasons in their price boost.
Oil Price Chart Gold Price Chart These charts show price history of crude oil and gold from 9th May 2011 to 6th August 2011
Some latest predictions and forecasts about gold prices:
Many companies, firms and experts have given their predictions and their reasons based on past events and experiences. Some of them are as follows:
➢ Standard Chartered Bank:
A research conducted by standard chartered bank on gold prices came forth on 14th of June, 2011. According to it the gold prices are going to be triple by next five years. The main reason is shortage of gold. They conducted their survey on 345 gold mines and concluded that gold will reach $5,000 in the next five years, while the same bank earlier this year said that gold will hit $ 2,100 mark by 2014 and app. $5,000 by 2020. The main points of their research were: • This forecast was conducted on the basis of supply-demand equation instead of inflation, recession and oil prices. • According to the report, the gold production will increase by only 3.6 % in the coming five years but the demand is going higher and higher with much faster pace. • The Asian central banks are purchasing gold which is also a major driving factor for high gold prices.
➢ Bullion vault:
A famous internet gold and silver exchange, bullion vault presented a report on gold pricing and forecasting along with a comprehensive video presentation in which they clearly discussed the future of gold prices and forecasted gold to be at $3,844 per ounce in the coming times.
Morningstar, a leading US research provider lowered down the prices of gold to around $1,200 by 2014 and 2015. the reasons according to them are that gold may...