Canadian Finance Blog

The Three Factors that Will Send Gold Soaring Even More

Posted: 03 Oct 2011 02:00 AM PDT

Gold doesn't seem to be going anywhere but up. People are piling in to gold so fast that the media can't make enough "sell your gold here" commercials and investors have committed what some would call a dangerous amount of money in to the commodity.

A "perfect storm" is emerging in the world economy that may allow gold to continue its unabated move up, according to metals forecasters. These three events could send gold to $3,000 per troy ounce making gold trading one of the most popular activities by traders with a wide range of abilities. Since no savvy investor would ever take somebody's word as a reason to commit real money, let's take a look at these three events. Here are the three factors that will send gold soaring even more.

Falling Energy Prices

There's no doubt that the global economy is struggling right now. There are very few countries in the world who are not experiencing an economic slowdown and as an economy slows, the price of energy tends to fall. This is easily seen in the price of Brent crude oil which also affects the price of gasoline.

Investors in oil and other energy products may not like it but for those who consume the energy, it's great news. One of those consumers are the gold miners. Some mines are as deep as 2.5 miles below the Earth and it takes a lot of fuel to pull the gold out of the ground. While this doesn't so much affect the gold trading market, it does allow the gold miners to increase their margins or ramp up mining capacity which does affect the market price.

Momentum is Up

Any time an investment rises in value as much as gold, the media as well as other investors will begin talking about bubble and maybe that bubble will burst. Behind the scenes, gold traders continue to pour money in to gold and momentum tends to produce momentum. As noted gold trader Dennis Gartman says, when a chart starts at the lower left and heads to the upper right, that's reason to buy.

The Economy is Shaky

For nearly everybody, a shaky economy has disastrous effects but for gold traders, it's a buying opportunity. With the future of the euro in question, a Greece default seemingly imminent, and a slowing China, investors would much rather be invested in gold instead of just about any currency. This is what has driven short term gold momentum to such a blistering pace and growth based on these factors, won't slow down any time soon. Tensions in Europe and around the world are catastrophic for the world but profitable for the gold trading market.

Bottom Line

Of course all of those who worry about a gold bubble could be correct and that's why any investment in gold should come with protection. Either set a tight stop on your ETF purchase or hedge your investment by going short a currency or other commodity. For less sophisticated gold trading investors, the bottom line for you is that you shouldn't run out and sell your old jewelry just yet. This gold rush doesn't appear to be over.

The Three Factors that Will Send Gold Soaring Even More originally appeared on Canadian Finance Blog on October 3, 2011.